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ADB proposes rice exchange

August 30, 2012


ISLAMABAD, Aug 30: A regional rice index and commodities exchange could help calm world rice price fluctuations and ensure farmers get a fair price for their rice, a working paper by the Asian Development Bank (ADB) noted.

‘Commodities Exchange: Options for Addressing Price Risk and Price Volatility in Rice’, which was produced out of the recent ASEAN Rice Trade Forum, suggests futures and options could be traded on existing commodities exchanges based on a regional rice index representative of the most exported and consumed grades of rice.

Top exporters could also establish domestic commodities exchanges, allowing farmers to obtain a better price by selling their most popular local rice grades directly on the market, rather than through a middleman.

For rice trading to be successful, essential building blocks need to be put into place, including warehouses, price dissemination systems, and education of market participants.

Warehouses would give farmers the option of storing their rice and selling it when they feel prices are right, while knowledge of prices would help them plan their crops.

Price volatility in the rice market has been linked to the kind of opaque bilateral transactions that currently dominate the market.

Using a commodities exchange, government agencies could instead act as aggregators for local rice farmers and hedge the price risk using the regional rice index.

An exchange could also provide an alternative platform to bilateral agreements, bringing much needed transparency in price discovery, thereby reducing price volatility.—APP