Indian Castor Oil Trading Takes The Spicy Route

After pepper, its castor oil. Last week, India moved a step closer towards globalising its commodities trade by opening castor oil futures to foreign players, traders and analysts said on Sunday.

They said the government decision to permit global castor oil futures and the resumption of domestic futures in cotton and jute would help put India on the world commodities map.

Its a very good move and will benefit India, said Dilip Thakkar, a director of the Bombay Oils and Oilseeds Exchange, which currently conducts the domestic castorseed futures.

Thakkar said the globalisation of futures trade in castor oil was in line with the economic reforms that India started in the early nineties. The latest development comes at a time when hectic efforts are being made to launch a global pepper exchange in August.

 

The pepper people have made our task easy as procedures for setting up a clearing house of our own are the same, said Thakkar. We have the necessary infrastructure. He said the governing body of the exchange would meet on Wednesday to discuss the issue.

We hope to complete all formalities within three months, Thakkar said, adding that global futures trading would begin from Diwali, the Hindu festival of lights in November. Thakkar said once India set up the global exchange, other major players in the castor oil industry and trade such as Brazil and China could come and trade on it.

India is the worlds largest producer of castorseed followed by Brazil and China. Indias castorseed production in 1996/97 (November/October) has been estimated at 650,000 tonnes, down from 950,000 tonnes in the previous year.

Traders said the sharp fall in production in the current year was due to a drop in the area under castorseed cultivation as farmers switched to more remunerative crops like cotton and groundnut. Indias castor oil production in 1996/97 has been estimated at 260,000 tonnes, of which 90,000 tonnes is meant for domestic consumption and the remainder for export.

While traders in general welcomed the move to set up a global exchange for castor oil, some expressed fears about possible price manipulation by big foreign players. Multinationals and other big foreign players can depress prices to buy castor oil at cheaper rates, said Jaggubhai Tanna, chairman of Jamnadas Madhavji International, a leading firm exporting castor oil. In a depressed price situation, farmers will be the losers, he said.

Tanna said the existing infrastructure was unable to cope with even the domestic futures trade in castorseed. First we must set our own house in order, he said, adding that amendment of by-laws would be a drawn-out process.

Traders said most of the teething troubles could be overcome by following the pepper path. In February this year, India announced the setting up of the countrys first international exchange and clearing house for pepper in the southern city of Kochi.

The global exchange, run by the Indian Pepper and Spices Trade Association (IPSTA), is expected to start from August. Traders said the decision to allow futures trading initially for three years and extend it after a review would deter market players from investing in infrastructure on a long-term basis.

They said resumption of cotton futures, suspended 30 years ago, would benefit farmers, brokers and yarn and textile mills, but it should be a permanent system. Forward trading in cotton was banned in the 1960s in a bid to curb speculation and to stabilise prices. Traders said they expect futures trading to take off by December or early next year. (Reuter)