During my childhood, I was regularly required to eat a vegetable, which was unequalled in its combination of fibrousness and bitterness. Nobody in the family actually liked it, but, for some reason, it found its way on to the table. I have generally managed to avoid it after exiting the parental establishment and really never gave it a second thought, let alone imagined that I’d one day write a column on it. But guar, or the cluster bean, exemplifies reinvention. So what if it tastes foul; it has other, far more lucrative, uses!
Guar gum, which is a power extracted from crushed guar seed, is now India’s largest agricultural export. In the first quarter of 2013-14, $737 million were exported, indicating an annual volume of almost $3 billion. In the previous two years, 2012-13 and 2011-12, its exports were worth $3.3 billion and $2.9 billion, respectively. 2011-12 was clearly the beginning of a boom; prior to that, exports did grow quite steadily, from $73 million in 2003-04 to $520 million in 2010-11, before multiplying by almost six times. It is also India’s largest commodity export to the United States (about $2.5 billion in 2011-12), significantly ahead of its closest competitor, gems and jewellery.
The primary reason for this surge in exports is its role in the extraction of shale oil and gas, by what is known as the hydraulic fracturing or “fracking” process. This process involves injecting a fracturing fluid, almost always water, at high pressure, to create channels in rock formations, which allow the oil or gas to move into larger pools, from which they can be extracted. The fluid carries with it a suspension of something called a proppant, essentially sand, which is forced into the rock to provide support and stability to the channels. This is achieved most efficiently if the sand is uniformly suspended in the fluid. To ensure uniformity, a soluble gel is added to the fluid to increase its viscosity. The most efficient soluble gel currently available, in terms of the least volume to achieve a given level of viscosity, is guar gum.
How much of the export boom was driven by quantities and how much by prices? Interestingly, both factors played a significant role, but not uniformly in different years. Between 2010-11 and 2011-12, when the boom started, the quantity exported rose by about 65 per cent, from about 317,000 tonnes to about 525,000 tonnes. The value per tonne went up from $1,640 to $5,594. In the next year, the quantity actually dropped quite sharply, to 261,000 tonnes. But the value per tonne more than doubled to $12,528, resulting in an 11 per cent increase in export realisation. In the first quarter of 2013-14, the value per tonne has reverted, coming in at $6,630.
From the global supply perspective, India is currently a dominant global producer of guar, accounting for about 80 per cent of world production. In India, the largest production centers are Rajasthan and Gujarat, which is where the big export surge is presumably originating. This concentration pattern provides a possible explanation for the price surge in 2012-13. Anticipation of a drought, which could have significantly reduced production in India (as happened in 2009-10), may have led to advance buying, pushing prices up. But some other important questions arise as well. One might expect that the sharp surge in quantity exported, even though it may have levelled off subsequently, would have resulted in a significant increase in acreage and/or production as a result of productivity increases. Unfortunately, the latest data available on these indicators from the ministry of agriculture are up to 2010-11, which do not cover the boom period. These data do not show a significant upward trend in either acreage or production, and, consequently, productivity, over the period between 2003-04 and 2010-11. We’ll have to wait till the next data release to establish more recent trends. However, it is rather difficult to see how the quantity surge between 2010-11 and 2011-12 could have been achieved without a substantial increase in both acreage and production. A news report in this paper last week indicates that both acreage and production are expected to rise significantly during the current year.
So, on the reasonable assumption that guar seed production has indeed been launched on to a new trajectory as a result of its export potential, can we draw some lessons for both the crop itself and for the Indian agricultural sector in general?
First, as regards guar cultivation, the sharp increase in prices is something that domestic producers need to be watchful about. India may be the largest producer by far, but there is already cultivation in, for example, Australia and the US. Relatively high prices will make cultivation in these geographies more profitable and, in quick time, they will become strong competitors to India. Given that the bulk of shale exploration and extraction is going on in the US, it will be very easy for users there to shift to domestic sources. This is not basmati rice, with the implied premium on cultivation in traditional areas. More so, high prices will also induce experimentation with other natural and, more importantly, synthetic soluble gels, with cost advantages over guar gum. The only way to retain competitiveness and the global monopoly is through productivity increases. What is being done to induce these?
From the broader sectoral perspective, it would be very revealing to learn how exactly this massive increase in exports was achieved in such short order. Even if it was largely a diversion from domestic sales, which, as I said before, was unlikely, some interventions in processing, storage and transportation obviously played a role. Are there opportunities to apply these more broadly? If indeed production was increased rapidly, what changes in land use patterns and cultivation practices did this entail? Has land been taken away from other crops, for example, reducing their supply and driving up their prices? Or, have farmers quickly assimilated new practices to enhance productivity? If so, how was this transition implemented? Did government bodies play a significant role?
On the face of it, guar stands out as an exception in the depressing story of Indian agriculture’s supply bottlenecks. We may still not want to eat the stuff, but we can certainly look for lessons for the rest of the sector from its spectacular rise.
This article was originally found here on www.Business-Standard.com The views are of the author(s).