COMMODITY COMMENTARY. Are Indian castor oil exporters selling the country short?

After a subdued period of trading well below ₹4,000 a quintal due to inventory overhang, castor seed prices have begun to look up in the last two months, thanks to the improved market outlook. But prices have largely remained bound in the range between ₹4,600 and ₹4,700.

Reports from producing centres suggest that castor seed growers may not exactly be delighted with the current prices, yet there is a sense of relief that prices are edging up. Clearly, seed availability is tightening as evidenced by castor seed production trends and castor oil export over the last two years. From 22 lakh tonnes (lt) in 2011-12, seed production declined to 19.6 lt the following year and then to 16.9 lt in 2013-14.

At the same time, castor oil exports have maintained a robust pace. From 4 lt in 2011-12, shipments increased to 4.3 lt the following year and then to 4.7 lt in 2013-14. In the first six months of the current fiscal, castor oil exports totalled 2.4 lt.

The market fundamentals clearly point to tightness in availability which is reflected in somewhat higher prices beneficial to farmers. However, there are lobbies opposed to rising castor seed prices and they have already raised the alarm. For instance, processors of castor seed and exporters of castor oil want to source the raw material at the lowest possible prices. However, policymakers, commodity exchanges and the market regulator have to take a broader view of the market structure and dynamics.

To be sure, India is the world’s dominant producer of castor seed and exporter of castor oil, enjoying as much as 80 per cent market share. The world market has seen prices as high as $2,800 a tonne and as low as $1,200 in recent years.

But high prices are the exception rather than the norm. High export prices that reflect the market fundamentals and India’s dominant position in the world market invariably benefits castor seed growers. Indeed, India holds a near-monopoly position; and yet obtains export prices that hardly reflect this near-monopoly. Questions are now being raised about the prices at which export deals are signed. Are Indian exporters throwing away a valuable industrial oil at low prices that in turn denies seed growers remunerative prices?

According to the Agriculture Ministry’s first estimate, the crop size is 19.6 lt compared with the target of 16.5 lt. However, trade reports suggest that the crop size could be lower because of bad weather conditions. In 2013-14, the government revised the castor seed production estimate from 18.6 lt to 16.9 lt. It is expected that this year too, the estimate will be lowered to reflect market realities.

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