With rice futures to be delisted, find ways to boost transparency in pricing

Yomiuri Shimbun file photo
The Forestry and Fisheries Ministry building in Chiyoda Ward, Tokyo.

It has been decided that rice futures, which so far have been traded on a trial basis, will be delisted. The government should consider other measures that make clear how the price of rice is determined.

The Agriculture, Forestry and Fisheries Ministry has rejected a request for the permanent listing of rice futures filed by the Osaka Dojima Commodity Exchange, which has been renamed the Osaka Dojima Exchange.

The request was aimed at enabling rice futures to be traded for an indefinite period. The exchange has been trading rice futures since 2011 through the repeated extension of a two-year trial run. With the ministry decision, however, the exchange said it would not seek another extension.

Rice futures trading started during the Edo period (1603-1867) at an exchange set up in the Dojima district of Osaka, in what is believed to have been the world’s first futures trading. It is disappointing, therefore, that rice futures will be delisted.

In futures trading, the volume and price of rice to be sold or purchased in the future are determined in advance.

Rice crops depend on weather conditions. However, if rice is traded on the futures exchange, farmers can avoid losses from falling prices even if supply increases thanks to a good harvest. Farmers can calculate revenue ahead of harvesting, making it easier for them to work out farming plans. Consumers can also enjoy great benefits if futures prices are used as indexes for rice trading to improve transparency in pricing for the crop.

As its reason for rejecting the request for a permanent listing, the ministry cited an insufficient number of farmers and distributors participating in rice futures trading.

The lack of participants can be attributed to the fact that the Japan Agricultural Cooperatives (JA) Group, which controls 40% of rice distribution, remains cautious about futures trading. Farmers reportedly have persistent concerns that rice could become a target for speculative trading. The physical trading of rice from futures exchange trading has accounted for less than 1% of the overall market.

Of course, the price of rice, the nation’s staple food, should not fluctuate excessively due to speculative trading. However, the current pricing is said to not reflect the actual market situation because it is mainly determined by how much rice the JA Group sells to wholesalers, over whom the group holds a dominant position.

While the demand for rice has been decreasing year by year, interdealer prices were on an upward trend for the crop harvested up through 2019. This trend could have encouraged consumers to shift away from rice even further.

The JA Group seems wary that it could lose its dominance over rice pricing if more volume is traded at the futures exchange. Moreover, the ruling Liberal Democratic Party reportedly called for the ministry to take a cautious stance in deciding whether it would approve the request for a permanent listing.

When it comes to rice policy, the government has been carrying out reforms to increase the degree of freedom in production and distribution, and from the 2018 harvest on, it stopped a measure that had sought to maintain prices by reducing rice production acreage. Delisting rice futures seems to run counter to this reform trend.

The ministry said that instead of rice futures, it aims to create a spot trading system that will closely reflect the actual situation for supply and demand. The ministry must establish a system that will encourage farmers to exercise their ingenuity and produce appealing rice.

— The original Japanese article appeared in The Yomiuri Shimbun on Aug. 29, 2021.