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Asean urged to put up commodities bourse

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Asean urged to put up commodities bourse

ADB says regional index for rice to help avoid price spikes
/ 01:59 AM September 01, 2012

THE PHILIPPINES and other Southeast Asian countries should consider putting up a common commodities exchange and to have a regional index for rice—a staple for many households in the region.

According to the Asian Development Bank, having a market for rice and other basic commodities would help promote transparency in the market prices of different rice variants, thereby benefiting farmers and consumers.

Transparency in rice prices, the ADB explained, would address price increases arising from abuses or flaws in the rice distribution system wherein middlemen largely profit and influence the prices of rice.

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It said a regional rice index (RRI), which could be derived from prices of rice to be traded in the proposed regional commodities exchange, should represent the most exported and consumed grades of rice in the region.

The RRI may serve as a guide for rice prices in countries in the region and address problems of significant price spikes resulting from abuses or flaws in the distribution process.

The ADB said it was vital for Southeast Asia to have a mechanism for addressing potential price-related problems in rice because the region remained a huge consumer of rice and played a major role in supplying the commodity to other parts of the world, including Africa.

It said countries in the region should come up with preemptive measures for avoiding rice price shocks such as that experienced in 2007.

“The Asean [Association of Southeast Asian Nations] can play a major catalytic role in developing the commodities exchange as a viable option for addressing price risk and price volatility in rice,” the ADB said in a study it commissioned titled “Commodities Exchange: Options for Addressing Price Risk and Price Volatility in Rice.”

In the study, authored by Framroze Pochara, a former executive director at the Singapore Mercantile Exchange, the ADB said the establishment of a commodities exchange could be complemented by the establishment of a “warehouse receipt system.” Under such a system, rice producers may keep their produce in a common warehouse until a buyer gets them. The producers also have an option to publicly sell the receipts.

“They [governments] could build warehouse infrastructure and lease this to private players or provide incentives to private players to set up the infrastructure,” ADB said.

Future contracts and options for rice and other commodities may also be traded in the proposed regional commodities exchange.

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Lourdes Adriano of the ADB’s rural development and regional sustainability department said Southeast Asia has a critical role in helping ensure supply and price stability of rice given the world’s dependence on the region for a significant portion of the global demand for the commodity.

According to the ADB’s estimates, rice production by Southeast Asia could increase by 16 percent to 128.3 million metric tons in 2021-2022 from 110.5 million metric tons in 2010-2011.

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TAGS: ADB, ASEAN, Asian development bank, Business, commodities bourse, regional price index for rice
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