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G. Chandrashekhar

Mumbai, Feb. 19 When major countries of the world continue to promote production of and trade in value-added products, India has been content with export of raw materials with limited value addition despite an expanding world market.

Castor oil, a versatile vegetable oil with varied industrial applications, is one such commodity in which the country continues to lose out opportunities to add value domestically and export higher value derivative products.

Within the Indian vegetable oil complex (comprising groundnut oil, mustard oil, soyabean oil, cottonseed oil and so on), castor oil has been a commodity with high demand in overseas markets for its versatility in being processed into second and third generation value-added derivatives.

Even as the country is chronically short of vegetable oils (mainly for edible use), castor oil has traditionally been an export-oriented commodity.

It is used in making soaps, paints, resins, lubricants and so on.

Annual exports of the oil are about 1.5-2.0 lakh tonnes by volume and about Rs 600-800 crore by value. India is the world’s largest producer, consumer and exporter of castor oil.

Much of the value addition after processing of castor oil is done overseas; and a handful of international trading houses that regularly buy the oil in bulk from India are able to reap windfall gains because of their tie up with the end users of derivative products.

In the process of bulk export of a primary commodity, Indian castorseed growers and oil exporters both lose out. It is perhaps time to review the situation and design a response that would strengthen the position of all stakeholders in the country.

It is well known that the demand for castor oil is price inelastic. Whatever be the price, overseas buyers are bound to buy from India, given the large export surplus we generate and continuing strong demand.

In the last three years, prices have fluctuated in a wide range between a low of $550 a tonne and the present high of Rs 1,200 a tonne.

While India produces over 3 lakh tonnes of castor oil annually (from a castorseed production base of approximately 8 lakh tonnes), other producers – China and Brazil – are a distant second and third. In fact, China is an importer of castor oil.

According to oil technologists, if India can convert even half of the present export of 2 lakh tonnes into value-added products like hydrogenated castor oil, dehydrated castor oil, hydroxy stearic acid, sebacic acid and so on, the value realisation from exports would more than double.

While some corporates have begun to manufacture castor derivative products to service overseas customers, many trading houses are still content selling castor oil in bulk to overseas buyers.

Opinion is gaining ground that the industry should consciously go slow on raw oil exports and promote sale of derivative products. Unfortunately, unmonitored growth, unregulated trading and lack of unified vision among industry participants have combined to result in the country’s failure to exploit a natural advantage.

Castor oil export in bulk should be discouraged and export of derivatives encouraged through some policy initiatives.

One way to consciously discourage export of castor oil in bulk would be to impose a duty on such exports.

A $100 a tonne export duty is something overseas buyers would absorb without much protest.

On 1,00,000 tonnes, customs duty of Rs 4,000 a tonne ($100) will generate a revenue of Rs 40 crore, which should be ploughed back into the sector to improve castor seed yields, raise production, help processing units modernise and tap export markets for derivatives.

Over a period, the share of derivative product exports would expand.

There should also be a positive incentive for derivatives exports.

Exporters of bulk oil are sure to object to imposition of export duty and may use the argument that such a move would hurt castorseed growers.

Far from it, growers would actually stand to benefit if export price realisation is attractive.

Most processors would also seriously explore establishing backward linkages for captive raw material sourcing.

Indeed, if castor oil export is discouraged and derivatives promoted, end-users of derivative products would begin to source their requirement from India directly, rather than through western intermediaries as at present.

This can potentially result in foreign direct investment here, modernisation and market integration. All stakeholders – seed growers, processors – will benefit.The world market for castor oil is not exactly free.

There are only a handful of international trading houses that buy oil in bulk from India. There are about a dozen or so exporters of oil and derivative products in the country.

The world castor oil market may be characterised as near-monopsony.

The opposite version of monopoly, a monopsony is the situation where only one buyer seeks a product from many sellers.

All these years, Indian exporters have played into the hands of international trading houses whose interest lies in sourcing the raw material in bulk from India at low price and add value overseas to earn large profit. This must change; and can change if the government follows progressive growth-oriented policies.

The Finance Minister may spare a thought in the forthcoming Union Budget.

More Stories on : Oilseeds & Edible Oil | Derivatives Markets

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