Bhola Ram, a farmer from Bhandhu Khedi in Jodhpur, Rajasthan, is in a sticky situation.
The 45-year-old farmer cultivates guar, a cash crop. Guar gum, which is used in shale gas exploration, is produced from guar seeds. Ram used to get good returns on his produce, as there was a huge demand from gum manufacturers.
But, what worries him now is, this year in 2013 demand for his priced crop has plummeted. When things were good from 2007-2012, Ram, who used to cultivate guar in two acres, scaled it up to about six acres. With few takers, he is sitting on a stock of about 20 quintals of guar beans, which he had saved for selling in the lean season.
“Till last year, I could get even around Rs 30,000 for a quintal of guar seed. But, this year, the prices have not even reached Rs 6,000, although the period between October and December is the peak season for guar trade,” the farmer said. Having burnt his fingers, Ram says he would be “careful” in future.
According to Rajasthan government’s figures, guar seed was grown in about 3.5 million hectares in 2013. The state contributes to about 80% of the total guar production in the country.
Thanks to high profitability, more farmers started growing guar. The state’s guar seed production has gone up from 12.61 lakh tonnes in 2008-09 to 20.23 lakh tonnes in 2012-13 -- an increase of about 61%. The guar is sown in August and harvested in October.
Ram’s dilemma is shared by Prakash Mal Jain of Nutritious Agro Food, a Jodhpur-based guar gum manufacturer and consultant. Jain set up two guar seed processing units each with 10-tonne capacity. However, with orders drying up, he has been forced to shut down one and is running the other in reduced capacities.
“We operate the unit only when there is an order. We failed to read the market correctly and hoped that good times will continue for long, but were so many others in and around Jodhpur.” Jodhpur is the main business centre for guar trade
There are about 250 seed processing and gum-making units in two main industrial estates of Marudhara and Boranada, most of whom are staring at a uncertain future.
"Fresh demands are drying up as guar gum buyers are looking for cheaper alternatives," said Jain. He said in many cases farmers too are reluctant to sell their produce as they believe that prices would again reach the astronomical highs seen last year.
THE DREAM RUN
It was around 2005-06 that guar gum started getting the attention of both domestic and international players because of its new found usage among shale gas explorers who used it for a process called fracking.
From a low of around Rs 2,000-2,500 per quintal all of a sudden guar seeds became a priced commodity peaking at a price of almost Rs 26,000-30,000 per quintal in 2012-13.
High profits attracted more players into the trade, and in no time the number of processing units increased from 50-60 to about 500 in the state. “Around the same time, the Boranada industrial area was being set up. So, manufacturers who wanted to expand their trade and new entrants shifted their operations to Boranada,” said Bheru Jain, CEO of Rajasthan Gum Private Ltd.
“Every Tom, Dick and Harry who had some money invested in guar processing, as returns were lucrative and the investment was minimal. This lead to a massive over capacity,” Bheru said. The cost of setting up a processing unit with a capacity of 8-10 tonnes per day requires an initial investment of around Rs 4 crore, while a guar powder making unit of the same capacity requires an investment of around Rs 1.5 to Rs 2 crore.
In the hindsight, Bheru thinks expanding the capacity was not a good decision. “We hoped that shale gas industry will continue to maintain their demand for the next 4-5 years. It seems the boom is showing signs of tapering off,” Bheru said.
He said units, which have a capacity to crush around 10,000 tonnes of guar seeds per day, are processing, on an average, just Rs 2,500 tonnes a day.
So, who is threatening to end the dream-run for the domestic guar gum industry? P. K. Hissaria, managing director of Sunita Hydrocolloids and president of Indian Guar Gum Manufacturers Association, said cheap thickening agents from China should be blamed for Indian traders’ plight.
"Carboxymethyl cellulose (cellulose gum) and xanthan gum -- which like guar gum were earlier used only in food items -- have found their way into the oil industry as well," Hissaria said.
He said though the alternatives are priced on par with guar gum or slightly more, when the supply rises prices would fall. This will lead to further drop in demand of Indian gum, signs of which are already visible as international buyers are no longer willing to quote high price for Indian guar.
"It’s not that guar trade will come to a close, as most of the new units and expansions were funded by internal accruals, but this churning will remove the grain from the chaff," he said.
Guar gum exports surged from Rs 2,938.70 crore in 2010-11 to Rs 21,287 crore in 2012-13, mainly due to a strong demand from gas exploration companies in the US and Europe. It even upstaged the Basmati rice as India’s Number One farm product for export.
But thereafter lies, the catch, in the first four months of 2013-14, India exported around 0.21 million tonnes of guar gum at a price of around Rs 5,729.24 crore. Whereas, during the same period last year, exports were around 0.16 million tonnes, worth Rs 12,651 crore, a whopping 55% drop in value.
Hissaria said the industry needs to restructure and look for alternative usages of guar gum, apart from its traditional use in the food industry. For farmers too, there are very few crops which give high returns like guar, he added.
“The cost of producing a quintal of guar is around Rs 8,000 and if we get only Rs 5,000-6,000 a quintal we might gradually shift to other crops like moong,” said S.R. Mirdha, another farmer from Bhandhu Khedi.
However, the processors and traders disagree with the perception. “Guar is still a lucrative crop for growers as no other crop gives you a price of Rs 5,000-5,500 per quintal. Though prices have softened this year, they are still better than what it used to be four-five years ago,” said J. P. Saraswat, a commission agent of Dalal Shakti Trading Company in Jodhpur’s biggest guar mandi in Bhagat Ki Kothi.