Commodities

Farmers stand to lose heavily in castor seed price collapse

G Chandrashekhar | Updated on October 15, 2019 Published on October 15, 2019

After suffering five long years of bearish market conditions and low prices, castor seed growers in the country started to smile from early last year with the rise in ready delivery castor seed rates.

But tragically, the expected gains for castor seed growers during the upcoming harvest are likely to be wiped out because of rampant speculation and suspected cartelisation in the market which has caused a collapse in prices.

From as high as ₹5,700 a quintal in August, the rates have plummeted to around ₹4,400 a quintal, resulting in a mayhem among stakeholders. With harvest just weeks away, it is estimated that growers would stand to lose something like ₹200 crore this season if market rates continue to languish.

It is critical to realise that India holds a dominant or even near-monopoly position in the global castor market, in terms of production, processing and export. As versatile industrial oil, castor oil has varied applications including in paints, varnish, lubricants and related industries.

Because the commodity lends itself to value-addition, demand for castor oil is largely price-inelastic. Developed countries (US, Europe) and China are major markets. India accounts nearly three-fourth of the world export.

Despite this dominant position in the global market, Indian farmers — the primary producers of castor seed — seldom received remunerative prices. Often, they were short-changed by a strong export lobby (with inter-se competition) that sought to throw away a precious commodity at low prices, favouring overseas importers rather than domestic growers. In other words, export price maximisation opportunities are squandered.

India’s castor oil export in recent years has been in the 5.5-6.5 lakh tonnes range annually with export value varying from ₹4,000-6,000 crore. Because castor in some sense is a highly export-oriented industrial commodity, and there are several stakeholders including growers, processors, domestic consumers and exporters, it is critical to ensure that all the stakeholders equitably enjoy the benefits of the dominant position the country holds.

It is necessary to regulate the physical market, especially castor oil export. The tendency to throw away a precious commodity at low prices means that the country stands to lose on precious foreign exchange and other stakeholders including growers are denied remunerative returns. This tendency to under-price a versatile export product in good demand has been going on for too long and must stop.

It may be necessary to incentivise export of high value-added derivative products and discourage large-scale bulk commodity export. Barring a couple of progressive companies in this field that invest in R&D and undertake value-addition for the global market, most players export castor oil in bulk, and thereby surrender the country’s intrinsic advantage to overseas buyers.

On the futures side, it is necessary to identify and segregate hedge contracts and speculative contracts. Such a distinction has assumed critical importance now. In the US, commercial (hedge) and non-commercial (speculative) contracts are segregated. The US commodity market regulator CFTC issues a weekly report (Commitment of Traders report) that makes for greater transparency in the market. It is time to take steps to ensure prevention of speculative disruption of the market. In case of castor, given its importance as an industrial commodity, a well regulated physical market will send a strong signal to the futures section.

The author is a policy commentator and commodities market specialist. Views are personal

Published on October 15, 2019
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