Castor seed brings back the smiles

Steady global demand and hazy outlook for production help domestic prices

After a prolonged period of inventory overhang and unattractive prices that demoralised castor seed growers, market conditions have now brought the smile back to their faces.

Castor seed prices have risen by a third to around ₹4,400 a quintal while castor oil export prices are in excess of $1,400 a tonne, again, an increase by a third from last year’s levels.

Castor seed production has steadily declined over the last three years — from 18.7 lakh tonnes (lt) in 2014-15 to 17.5 lt the following year and further down to 15.5 lt in 2016-17.

However, castor oil exports from the country have remained robust, hovering around the 5-lakh-tonne mark. In 2016-17, export was 4.85 lt, worth ₹3,500 crore, down from the previous year’s high of 5.43 lt valued at ₹4,200 crore.

Declining seed production combined with strong export of castor oil has meant a drawdown of seed stocks and reduction in the size of the inventory. To be sure, castor seed has a long shelf life and can be stored up to 3-4 years. A combination of steady world demand and hazy outlook for castor seed production in 2017-18 has translated into strong domestic price for seed and rising export price for oil.

The price rise has come as a big relief to growers who suffered low prices (₹3,000-3,500 a quintal) for an extended period of time since 2012-13 when a record crop was harvested.

With rising seed market, inventory holders are also keen to liquidate stocks, especially in this period of cash crunch. No wonder, domestic oil prices have fallen to ₹940 per 10 kilogram trading lot from levels of ₹1,070 per 10 kg in the first quarter of the year.

Demand for castor oil, especially from China and the industrialised western countries (the US, Europe), continues to be robust. The positive correlation between global economic growth and castor oil consumption is playing out well once again.

Traders cautious

The outlook for the next crop is unclear at the moment and therefore traders have turned cautious. While high seed prices are sure to encourage growers (as seen from initial sowing data), in Gujarat, where heavy rains and floods have damaged crops, groundnut and castor may be planted. In the event, there is the possibility of a rebound in seed production in 2017-18, which can lead to a price correction.

To be sure, castor oil is a versatile vegetable oil with potential for a wide range of industrial applications — both traditional and modern, including in soaps, lubricants, paints, textile chemicals and biofuel. With hardly any substitute, demand for castor oil is largely price-inelastic.

India is a world leader in production and dominant player in the world market, with a share of 80 per cent in production and export.

Because of high volatility, speculative interest in castor seed is large. Given that India is the dominant force in the global market for this commodity and there are hardly any substitutes, it is necessary to capture maximum value from the market; and the economic benefits of the near-monopoly position must flow equitably to all stakeholders. But this has not been the case. Growers are often short-changed.

Strict monitoring and regulation of the castor seed and oil market is necessary. It must be mandated that export contracts are registered with a government agency. Not long ago, India was selling castor oil at throwaway prices, often as low as $900-1,000 a tonne. The export market is dominated by a handful of entities who seem to play into the hands of overseas buyers.

Worse, over the last 30 years, India has failed to cultivate actual end-users of castor oil in Europe and elsewhere, but continues to deal with international trading houses that are trade intermediaries.

Indeed, the country has suffered enormous loss indirectly in the absence of strict regulation of castor trade. We need to encourage production and export of value-added second and third generation castor oil products.

The writer is a global agribusiness and commodities market specialist

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