Prefeasibility Study of an ASEAN Rice Futures Market

This report presents a prefeasibility study of a rice futures market in the Association of Southeast  Asian Nations (ASEAN) region. Following are the main points of the study:

Economic benefits. The general consensus among potential exchanges (Singapore Mercantile Exchange and Singapore Exchange), existing exchanges (Agricultural Futures Exchange of Thailand and Zhengzhou Commodity Exchange), Thai Rice Exporters Association members, and international trading houses is that an ASEAN-based rice futures contract would provide two important economic benefits to the market: price discovery and price risk management. ASEAN rice markets are currently opaque and a futures contract could help increase market price transparency to aid all market participants in marketing and production decisions. Representatives of the international trading houses who were interviewed confirmed the hedging need for a liquid rice futures contract.

Limitations of futures markets. Futures markets have a limited role in stabilizing prices across multiple years or seasons. In effect, they reflect current and expected future supply and demand conditions, and if those conditions result in higher or more volatile cash prices, futures prices will also be higher and more volatile. In this sense, futures markets are not a panacea for removing all market price volatility.

Necessary cash market characteristics. Past studies have identified several important cash market characteristics needed to promote the success of a futures contract:

(i) Adequate cash price volatility. The regional/international ASEAN rice market is characterized by high levels of price volatility. Prices must be volatile to create hedging needs and attract speculators. On the other hand, government intervention policies, across many countries in the ASEAN region, have been specifically designed to stabilize domestic price levels. Such policies are direct substitutes for a futures contract and, if successful, negate the need for a futures contract. Thus, under this criterion, a regional contract serving the highly volatile international market would have the greatest chance of success.

(ii) A large competitive and well-defined underlying cash market that lends itself to standardization. Neither domestic nor regional/international ASEAN rice markets meet these criteria. The regional and international markets are thinly traded by a few private traders and a significant amount of trade occurs directly between governments. Both exchange and international trading house representatives interviewed expressed concern that the potential hedging pool (users of the contract) was not large enough to create enough liquidity in a contract.

In addition, the market is highly segmented between different rice varieties and there is a lack of international grading standards to measure and standardize variety and quality differences. Both exchange and international trading house representatives

Andrew McKenzie No. 19. March 2012ADB Sustainable Development Working Paper Series Prefeasibility

Prefeasibility Study of an ASEAN Rice Futures Market 

ASEAN Connectivity Plan Technical Assistance

The Asian Development Bank (ADB) has approved the following technical assistance. This technical assistance will improve integration in the ASEAN subregion by building on the Master Plan on ASEAN Connectivity, endorsed by leaders in 2010, and establishing a development partnership mechanism to assist in the wider coordination needed to support ASEAN connectivity. It will also develop models to finance ASEAN infrastructure initiatives and focus on financial due diligence and priority project pipeline development. Amount: $975,000 equivalent financed by the Japan-ASEAN Integration Fund.

The importance and the associated resources required in improving regional connectivity to support economic development are well recognized. Thus prioritizing key projects and identifying alternative forms of financing will help address Asia's large infrastructure need. The Association of Southeast Asian Nations (ASEAN) leaders endorsed the Master Plan on ASEAN Connectivity (MPAC) in 2010. The MPAC represents an in-depth plan of action based on (i) a list of priority projects for ASEAN connectivity, (ii) requirements for institutional and policy coordination, and (iii) recommendations for financing key projects

Outputs:

(i) Resource mobilization due diligence, including financial analysis of infrastructure financing initiatives ; 

(ii) Project pipeline formulation and due diligence, and 

(iii) Stakeholder consultation process for consensus building among ASEAN members on priorities for infrastructure financing

ASEAN Connectivity Plan Technical Assistance x

Asia Economic Monitor.December 2011

The Asia Economic Monitor is a semiannual review of emerging East Asia’s growth and policy issues. It covers the 10 members of the Association of Southeast Asian Nations; the People’s Republic of China; Hong Kong, China; Republic of Korea; and Taipei,China. This issue includes a special section: Can East Asia Weather Another Global Economic Crisis?.

Economic performance in emerging East Asia remained robust even as moderation continued. Export growth decelerated on weak external demand, while authorities generally maintained tight monetary policies to curb inflation. In the third quarter of 2011, aggregate gross domestic product (GDP) of the 10 largest emerging East Asian1 economies expanded 7.3%,2 down from 7.8% growth in the first half (Figure 1). The People’s Republic of China (PRC) remained the strongest economy in the region, growing 9.1% in the third quarter, slower than its first half 9.6% rate. The four middle-income economies of the Association of Southeast Asian Nations (ASEAN-4) are expected to grow 4.5% in the second half (against 4.9% in the first 6 months).

The four newly industrialized economies (NIEs)4 expanded 3.8% in the third quarter— close to the 3.9% consolidated average annual growth rate between 2001 and 2010, but below its 4.6% first half performance. With leading indicators—exports, industrial production, and retail sales—more or less constant or slightly declining, economic growth in the region is expected to ease further during the remainder of the year 3.8% in the second quarter (Figures 4a, 4b). Growth in inventories in both the NIEs and the ASEAN, though positive, were quite small. In contrast, consumption growth held steady in the NIEs as consumer confidence was mixed (strong in Taipei,China; weak in Hong Kong, China). Consumption growth continued to increase slightly in the ASEAN-4 (except in Thailand). In the PRC, expanding consumption—proxied by retail sales—remained robust, but showed signs of easing gradually

© 2011 Asian Development Bank Date:December 2011. Series: Asia Economic Monitor

Asia Economic Monitor.December 2011

For more information about Projects in Asia see Asia Projects

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Promotion of Capital Market Instruments for Infrastructure Financing in the ASEAN

Enhanced regional infrastructure development in the ASEAN region. through capital market financing, thereby leading to a greater connectivity in the region.An operational mechanism is established to support the ASEAN's regional infrastructure development through a more active use of the capital market instruments for infrastructure financing. Technical analyses and assessments which aim to develop an operational plan for a mechanism (such as the Center of Excellence ) to promote private infrastructure participation in the ASEAN region.

Promotion of Capital Market Instruments for Infrastructure Financing in the ASEANs