The Philippine Stock Exchange  (PSE) and the Department of Agriculture (DA) on Friday forged a new partnership that will lead to the creation of a commodities exchange in an effort to increase liquidity in the capital markets while boosting investments in the farm sector.

The agreement, which officials from both camps described as long overdue, involves starting a separate platform to allow rice, corn, sugar and coconut to be traded on the spot market.

“This is part of the initiative of the PSE to make the market competitive with the rest of the region. We are basically an agricultural country and yet we don’t have a commodities market,” said PSE president and chief executive officer Francis Lim following the signing ceremony with the DA last week.

For his part, Agriculture Secretary Arthur Yap said, “The establishment of a commodities exchange for products such as rice, corn, sugar and coconut is something that should have been done a long time ago.” The government official said this industry accounts for over a fifth of the Philippine economy.

“Sources for liquidity in agricultural production are limited. Hopefully, if we have a mechanism, we have a way to flush more funds into this sector,” he said.

Under the deal, the DA will handle the “physical” aspect of the new exchange, such as providing hard infrastructure, dealing with the farmers and the actual delivery of goods.

Meanwhile, the bourse will study the system implementation on top of documentation, tax treatment and regulatory measures, such as whether it be owned or coowned by the PSE, and licensing to allow for commodities trading, among other considerations.

“It is a long-term project, but we have to start somewhere,” said Lim. He declined to give a time frame for implementation but said “our commitment is to do it as early as possible.”

He disclosed that the PSE had already tapped the services of New York-based consultant CBM to assist in the requirements in setting up an organized commodities exchange.

In addition, the success of this project, which will be implemented under the PSE’s new trading system, will also determine new offerings  such as commodities futures trading, among other derivative instruments.

“Let’s take it step by step because without a firm and robust spot market, it will be very difficult to talk about derivatives options, futures and the like,” Lim said, while he stressed the importance of “getting it right” this time.

Earlier efforts at establishing a commodities exchange had failed largely due to the lack of investor trust, noted PSE director Alejandro Yu, during the same event.

The creation of a commodities exchange is among the newer products to be introduced by the PSE. The bourse earlier said it will offer a gold certificate trading scheme, a product which will be guaranteed by the Bangko Sentral ng Pilipinas. In addition, the PSE is exploring specialist trading which targets foreigners.