ASEAN’s ‘catalytic’ role in averting a global food crisis

Food prices are on the rise again, prompting fears of another food crisis like what happened four years ago. The World Bank, based on its latest Food Price Watch report, confirms the trend though it says that it does not see a repeat of 2008— at least not yet.

Prices of maize and soybeans reached record peaks in July. What about other crops?

In the case of rice, prices remain stable due to abundant supplies. To sustain that stability and help avert a global food crisis, the Asian Development Bank has a recommendation: establishing a commodities exchange and rice index for member countries of the Association of Southeast Asian Nations.

The index will also ensure fair payment to farmers, an ADB working paper reveals. If farmers had access to price information, and warehouses to store grains until they knew they could profit, rice trading could be more successful and prices less volatile.

Southeast Asia is an important player in the global rice trading market. It supplies 29 percent of the global rice product. ASEAN members Thailand and Vietnam, along with India and Pakistan, provided about 80 percent of African rice needs last year, according to the ADB.

Development partners and public-private partnerships can play a big role in creating the hard and soft infrastructure needed for Asian rice markets to work. Warehouses need to be built near farmlands or ports to store rice until growers decide the price is right, and transportation and logistic support might be necessary in order to transport the crops. Information dissemination networks must be established to inform farmers how much their rice is worth. Education is needed as well, to teach producers how to use the tools for hedging or getting a fixed price for their goods, according to the ADB paper.

Aid agencies may also prove useful in working with civil society organizations to bring farmers together to form cooperatives, receive training, and advocate for better and more consistent trading policies. They could also provide technical assistance to countries trying to establish their own agriculture departments — or even, as the paper suggests — a central regional agricultural agency.

In order for Cambodia, Laos, and Myanmar to produce more rice, they would need investments in transportation and market infrastructure, research and development on using natural resources efficiently, and improvements in production and milling quality, according to the ADB.

The ADB paper blamed “opaque bilateral transactions that currently dominate the market” for price volatility, and said ASEAN can also play a “major catalytic role” in developing commodity exchanges that would address the fluctuations, and in time contribute to regional food security.

The working paper recommends developing a regional rice price index futures contract denominated in U.S. dollars, and trading it on existing commodities exchanges in Hong Kong, China or Singapore. The regional rice index could serve as a benchmark for farmer’s cooperatives or the private sector to set prices at a local level.

Farmers in top rice-exporting nations like India, Vietnam and Thailand could get better prices if commodity exchanges were also established domestically, allowing them to avoid middlemen who chip away at their profits.

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