Chemistry plays spoilsport with guar production and its prices in India

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By Shekhar Ghosh

Guar seed production in India, world’s largest producer of the silly legume, is likely to shrink by 10-12 per cent this kharif season against last year primarily due to rise in use of synthetic polymers by US oil and gas industry.

This development has dwindled exports prospects and shrunk domestic guar prices as well. Ruing lower remunerations, farmers have increasingly resorted to planting other crops in India. A 25-30 per cent decline in price of the legume in this quarter is expected to encourage farmers to shift to cotton and chickpeas.

The area under guar cultivation stood at around 40 lakh hectares in 2016 against 55 lakh hectares in 2017. The 2018 acerage will be clear by early August as sowing extends until then in states like Gujarat and Rajasthan.

Farmers this season are likely to opt for alternate crops. Already in Haryana, higher income in cotton and paddy in the last kharif season has lured away farmers from guar. The area under cotton has witnessed an increase of 100,000 hectares at the cost of guar.

Slump in crude oil prices is further encouraging the use of synthetic polymer by the US crude oil industry, ensuring that demand for guar gum remains moderate.

Guar gum started to play a key role in the extraction of shale oil and gas through the fracking process, post-2009 and helped the US increase shale gas production to 11.3 trillion cubic feet in 2013, almost nine times that in 2005.

The shale revolution and speculation of drought in India, together with expectation of production shortfall, led to panic stocking by the US. As a result, the US became the top importer of guar, accounting for 73 per cent of global imports in 2012. However, its share fell to 57 per cent in 2015.

The unprecedented rise in prices, especially after 2009, saw Indian farmers preferring guar over competing kharif crops such as cotton, moong and soyabea. As a result, India’s guar production rose to 2.45 million tonnes in 2015-16 from 0.9 million tonnes in 2005-06.

New guar processing facilities were built in Rajasthan and cultivation extended to tradtionally non-guar producing states.

Prices hit demand

However, sharp rise in the prices of guar products prompted importing countries such as China and Australia to encourage indigenous guar cultivation and processing.

Also, the food industry’s demand for guar gum was adversely impacted by extreme volatility and sharp rise in prices, especially during 2011-12. Higher prices also prompted guar consuming industries to explore and shift to cheaper substitutes.

Then crude oil price also declined from $115/barrel in August 2014 to $30/barrel in January 2016, jolting guar exports as demand from US shale oil and gas producers fell and pushing prices sharply lower.

Guar price shocks in the past have prompted international buyers to look for cheaper alternatives, such as tara gum, locust bean gum and xanthan gum, which are being used in the food industry.

Synthetic polymers are used in the shale oil and gas industry. While no alternative has proven to be as effective as guar, guar substitutes will keep guar prices from shooting up unreasonably.

The guarseed production in India stood at around 1-1.05 crore bags (a bag weighs 100 kilogram) in 2016 compared to 1.75 crore bags in 2015.

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