The rice market
Effective use of rice futures could help stabilize agricultural management and improve the transparency of the rice pricing system. We hope rice futures trading will be a step toward more market-oriented and competitive rice farming.
Rice futures trading resumed Monday for the first time in 72 years at the Tokyo Grain Exchange and the Osaka-based Kansai Commodities Exchange.
Trading at the Tokyo Grain Exchange, where Koshihikari rice from the Kanto region was being auctioned, got off to a tumultuous restart--the market closed with no quotation given for contracts due to massive buy orders.
Rice futures trading resumed Monday for the first time in 72 years at the Tokyo Grain Exchange and the Osaka-based Kansai Commodities Exchange.Trading at the Tokyo Grain Exchange, where Koshihikari rice from the Kanto region was being auctioned, got off to a tumultuous restart--the market closed with no quotation given for contracts due to massive buy orders.
The orders are believed to have been triggered by speculation that rice supplies would shrink if radioactive contamination spreads to rice amid the ongoing crisis at the Fukushima No. 1 nuclear power plant.
Monday's trading, it can be said, epitomized market trading in which various factors affect prices.
A futures market is a commodity market where contracts for delivery on a specified date are traded. In the case of rice futures trading, farmers and distributors conclude contracts before rice is harvested.
If the contract sets the sell price at 13,000 yen per 60 kilograms of rice, the farmer can sell the grain at this price even if the actual price falls to 12,000 yen. Conversely, if the price rises to 14,000 yen, the farmer pockets only the amount stipulated in the contract. The system gives farmers the benefit of being able to calculate revenue ahead of harvesting regardless of price fluctuations, making it easier for them to work out farming plans.
It is possible that futures prices will be used as indexes for rice trading. Spot prices are supposed to be determined by negotiations between producers and distributors. However, in reality, agricultural cooperatives that control 60 percent of rice distribution have the biggest say when it comes to deciding prices.
If prices determined by futures trading in which a diverse array of traders take part are used as yardsticks for negotiations between individual farmers and distributors, the rice market will be transformed and prices will be decided not by the power balance between sellers and buyers, but by market forces.
The agricultural cooperatives are not taking part in rice futures trading. They oppose this trading because they believe it will "adversely affect rice supply and demand." But we wonder if they are trying to prevent their dominance over rice prices from being eroded and their interests threatened.
A policy switch
The fundamental goal of rice policy is to increase flexibility in rice production and distribution, which have been tightly controlled by the government and agricultural cooperatives.
The government has shifted from a policy of stabilizing rice prices by forcibly reducing production through rice acreage cuts, to one that lets prices go where market forces take them. Rice futures trading, which was abolished under wartime control, will be resumed for two years on a trial basis in line with this policy change.
However, there is concern that futures trading could lead to radical price fluctuations as funds seeking short-term profits pour into the market.
To curb speculative investment, the agriculture ministry will restrict the range of price fluctuations and transaction volumes.
We urge the ministry to establish a watertight supervisory system so anyone can trade on the futures market with peace of mind.
Source: newsroom - farmingnewsdaily.co.uk