Agri Business

Poor returns for castor may force farmers to switch to other crops

Rutam Vora Subramani Ra Mancombu Ahmedabad/Chennai | Updated on February 21, 2021

The switchover could lead to oil shortage next year

The global market will likely face castor oil shortage next year as castor planting is seen lower this year in view of comparatively low returns for it, according to industry experts.

The experts, who addressed the Global Castor Oil Conference 2021 Webinar, see a decline in the area under castor in India further to the one that has been witnessed last year in view of the low returns. Sowing of the castor crop normally begins in the second half of the year.

Castor oil prices are seen range-bound between $1,200 (₹87,0505) and $1,500 (₹1.09 lakh) a tonne this year as the global market is seen having ample supplies of the industrial oil.

Castor oil is mainly used by the cosmetic and personal healthcare sectors mainly for skin and relieving pain besides as laxative. Ricinoleic acid, which makes up about 90 per cent of castor oil content and is a unsaturated fatty one, finds use as a natural moisturiser in cosmetics.

“Castor oil prices are comparatively lower to other oils such as sunflower, soybean and rapeseed. During October 2020-February 2021, castor oil prices were $100 below the 10-year average. This will influence planting of castor this year,” said Thomas Mielke, edible oil journal Oil World Chief Executive Officer (CEO).

Currently, castor oil (first grade) is quoted at $1,305 (₹94,675) a tonne compared with an average $1,164 (₹84,450) in February last year.

According to the Solvent Extractors Association of India (SEA), the apex body of oilseed crushers, castor oil prices have gained a little over 12.5 per cent year-on-year.

Compared with this, palm oil, the cheapest vegetable oil in the global market, has gained about 60 per cent at a landed cost of $1,075 (₹78,000) a tonne, soybean de-gummed or crude oil 40 per cent at the landed price of $1,122 (₹81,400), sunflower 72 per cent at $1,455 (₹1.06 lakh).

Even rapeseed (mustard) and groundnut oil, too, have gained 35-45 per cent during this period, SEA data show.

Higher than MSP

In terms of returns for the growers, castor seed currently fetches ₹4,460 a quintal, while sunflower gets ₹6,200, soybean ₹4,980, groundnut ₹6,500, mustard ₹6,475 and sesame ₹11,400.

All these seeds are higher than the minimum support price (MSP) fixed by the Union Government for the current crop year (July 2020-June 2021). On the other hand, the Centre does not fix MSP for castor seed since it is treated as an industrial raw material.

The MSP fixed for sunflower is ₹5,885 a quintal, while for soybean it is ₹3,880. The support price for groundnut is ₹5,275 and for sesame ₹6,855.

The MSP for mustard, a Rabi crop that will be harvested in April, was ₹4,425 for the 2019-2020 crop year and for this year it is ₹4,650. “The rise in prices of edible oils has made castor lose its competitive edge. This affects India in a big way, particularly since it is a major importer of edible oils and the largest exporter of castor oil,” Mielke said.

India imports about 15 million tonnes of edible oils, mainly palm group of oils that make up nine million tonnes, annually spending about ₹75,000 crore.

“While castor is not supported by MSP, other oilseeds have that protection. Given the fact that castor prices have been lower last year and are expected to continue range-bound this year, farmers could shift to other beneficial crops,” the German journal’s CEO said.

Global shortage expected

This, as a result, will lead to global shortage of castor oil as India contributes 95 per cent of its world supplies. Other competing nations such as the second-largest producer Brazil and another large producer China each contribute less than two per cent of the total global production. These nations will not be able to make for any huge drop for the area under castor in India.

Last year, the area under castor declined to 8.26 lakh hectares against 9.73 lakh hectares in 2019, when the area under the crop increased 34.5 per cent.

Despite the lower acreage, castor seed production is nearly touching last year’s output, thanks to good yield, bountiful monsoon and conducive weather.

The yield has been projected at a new high of 2,303 kg per hectare against 1,977 kg the previous year. This has helped the castor crop survey agency, AgriWatch, to peg production at 19.02 lakh tonnes against 19.52 lakh tonnes last year.

During 2019, the area and production increased since castor seed prices surged to nearly ₹55,000 a quintal before crashing with the onset of the novel Coronavirus pandemic.

In June-July last year, prices dropped to below ₹40,000 a quintal before climbing back to current levels.

Andrew Pollack of US Alnor Oil company, which deals with castor oil, said bulk imports of castor oil dropped last year leading to the decline in prices. However, imports are witnessing a good movement now with a 20 per cent rise in bulk shipments. This could lead to an increase in demand.

Experts said that despite the pandemic affecting merchandise trade, India did well to export 6.5 lakh tonnes of castor oil in 2020, a four-year high.

According to SEA data, India’s castor oil exports were 5.45 lakh tonnes in 2019, 5.97 lakh tonnes in 2018 and 6.28 lakh tonnes in 2017. Castor oil shipments have annually been fetching about ₹5,500 crore.

Haixia Wang of China’s Hengshui Jinghua Chemical Company Limited, which imports castor oil, said that prices may not drop below $1,250 a tonne as it could face technical resistance.

Mielke opined that global production will be “sufficiently large” this year. Sailesh Baldha, Adani Wilmar General Manager, said prices could be lower due to higher arrivals in April. Towards the second half of the year, prices could be range-bound, he said.

The projection of a higher-than-expected crop projection of 19.02 lakh tonnes is being contested by industry experts. Mielke pegged Indian production at around 18 lakh tonnes, while others do not expect the output to exceed 16 lakh tonnes.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on February 21, 2021
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.