“The expert meeting related to market opening of rice futures” chaired by Professor Takero Doi at Keio University held its second meeting on March 1 and proposed the promotional measures such as educational activities by commodity futures traders mainly regarding rice futures market that is being applied now. The concrete measures : Ⅰ. Enlightenment on how to use rice futures trading to businesses that handle physical rice－farmers, distributors, wholesalers, users, etc. Ⅱ. Promotion of account opening to agricultural workers to browse average rice prices on Dojima Exchange (ODEX) Ⅲ. Implementation of promotion measures to increase momentum for listing of rice futures transaction in the commodity futures industry. Also, Japan Commodity Futures Industry Association, that is a promotion organization of the commodity futures industry, has a positive attitude towards backup.

Justification of disapproval of rice futures? Opinion hearing arranged in a hurry

In August 2021, rice futures market on ODEX disappeared after being listed on trial. Trial listing means to be listed on a trial basis and to be traded over a fixed period of time prior to approval of permanent listing. It is carried out for the purpose of verifying function of futures market, and its impact on production and distribution, and so on.

Trial listing is possible for the first time with the approval of the competent minister, that is the Minister of Agriculture, Forestry and Fisheries(MAFF) in case of rice futures, comparing it to a driver’s license, it corresponds to temporary license status. After trial listing is achieved, it will lead to the following three options: application for approval of permanent listing or abolition due to cancellation of application for permanent listing, otherwise extension of trial listing.

Since 1990, in agricultural products, corn, arabica coffee, hen egg, etc. transitioned from trial listing to permanent listing, however, there were some products such as broiler, edible potatoes and soybean meal that were abolished without applying for permanent listing.

The trial listing period of rice futures transaction which began on ODEX in August 2011 was two years. Its trial listing was extended respectively in 2013 and in 2015, and it was subsequently extended to 2017 and 2019.

In this regard, in 2017, although it was once decided to apply permanent listing, the permanent application was withdrawn shortly after and it was replaced with application for trial listing.

While the criteria for approval of trial listing are Ⅰ. not applicable to the case where sufficient trading volume is not expected,Ⅱ. not applicable to the case where there is a risk of significant disruption to production and distribution, the criteria for approval of permanent listing are Ⅰ. sufficient trading volume is expected, Ⅱ. necessary and appropriate to facilitate production and distribution. So to speak, approval or disapproval in trial listing is decided by point addition method, and approval or disapproval in permanent listing is decided by point deduction method.

The application for permanent listing of rice futures was done on July 16, 2021 after consultation between MAFF and ODEX. At that time, none of the people involved doubted realization of the permanent listing. On the contrary, a notification to hear opinions by MAFF was suddenly sent to the exchange on July 27.

Unable to overcome the wall of rite of passage in spite of market expansion and promising claims

Hearing opinions is usually conducted on the premise of disapproval, so it is just a kind of rite of passage to hear the applicant’s opinion. The hearing was held at the main building of MAFF on August 5.

The president of ODEX mentioned the following objections: Ⅰ. The number of rice producers that participated in the rice futures trading was consistently increasing for ten years from the start of trial listing－August 2011－to last　two　years，and the number of distributors also had reached a stable level since the beginning,Ⅱ. The number of trader accounts was 2,486 (including 93 accounts of businesses that handle physical rice) in 2015 and 3,609 (including 249 accounts of businesses that handle physical rice) in 2021, being a noticeable increasing trend, Ⅲ. Even if we look at the composition of participants based on open interest, as for Niigata koshi rice, the mainstay, businesses that handle physical rice accounted for approximately 50 percent, Ⅳ. Physical delivery was also used constantly. In other words, it was proof that it was being utilized at production and distribution sites to facilitate sales and purchasing. However, the result didn’t change and a notice by MAFF was issued disapproving the permanent application on August 6.

As for Ⅰ. of the criteria for approval of permanent listing, the volume of rice futures trading was increasing from the beginning of the year, its monthly volume reached 5th class of all 23 listed products even compared to main products such as gold on Osaka Exchange and crude oil on TOCOM, and it became the most liquid of all agricultural products.

Moreover, in April 2021, SBI SECURITIES Co., Ltd., the biggest online brokerage company in Japan, announced that it would place a buy or sell order with online around one year later. If that happens, over six million customers of the company at that time would have been able to trade on ODEX. In the commodity industry in Japan, even at its peak, the number of customer accounts was around 100,000, so there were high expectations for improving the liquidity of transactions if it was achieved. Considering these circumstances, what do you think about the point that the trading volume is not expected? The trading volume at that time should have been judged to be sufficient for permanent listing approval.

As for criterion ofⅡ. facilitation of production and distribution, survey results that had been done to participants at seminars by ODEX at production area of Niigata, Akita and Miyagi prefectures pointed out it.

Lecturing as a representative of producers, the representative Toshiyuki Tsubotani of Kitsu-Mizuho Cooperative said “Only those who want to trade rice futures should do so.”　and he had been doing rice futures trading for several years viewing it as one of the options for sales destinations. At the seminar, emphasizing the usefulness of rice futures trading, he mentioned “There is no need to abolish it because there are people participating.”

So far, people who have opposed rice futures trading opposed from the perspective of stable supply of staple food saying　“Don't make rice a subject of speculation.” However, in the current coronavirus pandemic, rice demand for eating out has plummeted and there is too much rice, so rice price goes down and it is causing huge losses to producers and distributors.

Because futures trading is in place to respond to these sudden accidents, the opposing side’s points are off the mark.　In fact, during this 10-year trial listing period, there was no evidence that rice prices have fluctuated wildly due to the rice futures trading.

So, why did the rice futures transaction have to be disapproved? This disapproval was widely reported by major mass media. The tone of the argument generally emphasized the need for rice futures. It tells how rice prices in Japan lack transparency. Although other mass media often criticized　MAFF that disapproved the rice futures transaction, the division in charge of commodity futures trading in MAFF understood the future potential of rice futures and supported it. Japan Agricultural Cooperatives (JA) was not only opposed to it. It was crushed by some members of parliament who have been supported by agricultural workers including JA members.

⇒【NEXT】(Vol. 2)
Growing Momentum for Rice Futures to be Revived－What was Food Control System?

（Futures Tribune・issued March 19, 2024 ・no.3275）