MANILA, Philippines – The Philippine Stock Exchange plans to introduce a platform for the spot trading of commodities like rice, corn, sugar and coconut to help boost transparency in the pricing of the country’s key farm produce while offering an alternative outlet to investors.

The PSE signed a partnership with the Department of Agriculture Friday night to lay the foundation for such a commodities trading platform. Under the agreement, the DA will support the enactment of laws, rules and regulations and circulars necessary to create an enabling environment for an organized commodity market for agricultural products.

The ultimate goal is to come up with a trading system that will link Filipino agriculture farmers to profitable markets for their products.

The PSE wants to set up the platform the soonest time possible.

“We believe that an organized commodities exchange in the Philippines can help relieve the pressure on commodity prices. If we can establish more transparency in pricing, the players in the food supply chain will face fairer prices,” PSE president Francis Lim said during the signing with Agriculture Secretary Arthur Yap.

“Price transparency allows our farmers to get better prices for their produce as intermediation costs are reduced. Traders, end-users and consumers will also benefit as prices shall now be determined at the national level, unlike in the present scenario where price discovery can be limited to local geographic areas,” Lim added.

But unlike most commodities exchanges across the globe, Lim said the Philippines may start with trading based on spot or real-time prices rather than futures, whereby investors buy contracts at a specified price with delivery set at a specified future date.

As such, he said pricing of the agricultural products to be traded would be mostly based on local pricing.
In the 1980s, there existed a platform for commodities futures exchange trading in the Philippines under the Manila International Futures Exchange (MIFE), which shifted to foreign exchange trading in the 1990s. The Securities and Exchange Commission eventually padlocked MIFE due to a multitude of investor complaints about unscrupulous “boiler room” operations.

In more developed markets, commodities futures exchanges match parties with the need to hedge against price fluctuations such as farmers with investors willing to bet on price fluctuations for profit.

“This partnership is beneficial not only for investors and other market players but for the economy as a whole. A strong agricultural sector means a strong economy, considering that agriculture accounts for one-fifth of this nation,” Yap said.

“The way to accelerate agri-fishery expansion is through innovative financing mechanisms. Having the PSE study a mechanism of selling commodities for forward or current basis is a step toward that direction,” he added.

The PSE and the DA are still exploring several soft commodities—referring to those that are grown, rather than mined—to be traded at the proposed exchange. The local bourse has engaged New York-based The CBM Group Inc., a management consulting firm specializing in the financial services industry, to help set up the new platform.

“Bringing in additional investment products through the proposed commodities exchange presents a whole new motive for the public to boost investments in our stock market,” Lim said.