Guar gum, the glue that binds the global oil and gas exploration industry together has ended up binding traders and farmers of Rajasthan in a deadlock, with no signs of a resolution in sight.
The stand-off, triggered by the farmers’ decision to hold on to their guar crop in anticipation of higher prices, has brought Jodhpur’s guar trading and processing market, responsible for 40 per cent of the global guar gum supply, to a halt.
So much so, the common refrain now among farmers of Rajasthan is “sell gold if you need to, but hold on to your guar.”
The humble guar or cluster bean (Cyamopsis tetragonoloba) is an annual legume and the source of guar gum. Once deemed fit only for cattle feed, it has now made terms like futures trading, National Commodity and Derivatives Exchange (NCDEX) and Forward Markets Commission (FMC) household names in Rajasthan over the last three years.
Today, most farmers in western Rajasthan, even those illiterate, know futures trading, the functioning of the NCDEX and its regulator FMC inside out.
Its use
Guar gum, a white free-flowing powder derived from guar splits, is widely used by the global oil and gas industry for “fracking,” a hydraulic fracturing technique.
Due its unique binding properties — the ability to suspend solids, bind water by hydrogen bonding, control the viscosity of aqueous solutions and form strong tough films — guar gum is mixed with water and sand to “frack” shale gas out of sedimentary shale rock formations.
Owing to unprecedented demand from the United States, China, Germany, Russia and Australia (top five importers), everyone in western Rajasthan with a few bighas to spare decided to jump on the guar bandwagon, forgoing even cash crops like cotton to grow more guar.
Exports
Exports of guar gum from India, which stood at 2,18,479.71 metric tonnes in 2009-10, rose 223 per cent to reach 7,07,326.43 MTs in 2011-12.
The rise in the value of exports over this three-year period was more outlandish, going from $239.08 million to $3446.36 million, a rise of over 1,300 per cent. (Source: Agricultural Products Export Development Authority)
Over the six months leading up to March 2012, prices had jumped up by 1,000 per cent, with guar seed selling for Rs.28,550/quintal and the gum going at Rs.90,780 a quintal.
On March 21, the price of guar gum created history by peaking to Rs.1,00,195 a quintal in the Jodhpur spot market. (Source: NCDEX and FMC bulletin)
At that point, suspecting manipulation of the market by select firms, the FMC banned futures trading in guar in March last year.
While guar is grown in arid and semi-arid regions of most of northern India, including Rajasthan, Madhya Pradesh, Gujarat, Haryana and Punjab, its processing and trading are almost exclusively confined to Jodhpur.
The wait
“The Jodhpur spot market decides the international prices of guar and its derivatives, including the gum,” claims a spot trader there.
Before March last year, Jodhpur was basking in its glory as the town that worked the global guar trade. Today, most processing units in Jodhpur that turn guar splits into gum, have ceased operations.
“My unit operates for only four days a month. Most others have stopped their operations entirely,” says Manish, who owns a processing unit in Jodhpur.
“There is a lot of guar out there but none of it is making it to the market because certain fake advertisements have advised farmers against selling until prices pick up.”
He was referring to full-page advertisements in the local media by B.D. Agarwal of the National Unionist Zamindara Party.
These advertisements made farmers aware of the demand of guar in western markets and advised them not to sell their produce till prices shot up further.
“False information is being spread by multinational companies regarding cheaper alternatives to guar in order to bring down prices but farmers will not give in to these rumours,” says Mr. Agarwal, a guar farmer.
Last year, farmers had benefited from the exorbitant prices guar commanded. So this year, they are in no mood to be satisfied with a mere Rs.10,000/ quintal, the current going price for the crop. Guar gum is selling for about Rs.31,000/quintal.
“What’s the rush? From what we hear, the United Progressive Alliance government will be going in for mid-term elections this year and in order to get the votes of farmers, it will most likely resume futures trading in guar very soon,” says Rajender, who is in no hurry to sell off his stock of 45 quintals, harvested last year from his 30 bighas in Pokharan, Jaisalmer.
In fact, only last month, the NCDEX had applied to the FMC for resuming guar futures and was hopeful of getting the FMC nod within a month, according to newspaper reports.
Chakravarti Singh, who is holding on to his produce of 50 quintals for want of better prices, has more ambitious plans. Hoping that futures trading will soon resume, he plans to buy guar from other farmers at existing rates and then make a killing once prices reach last year's levels.
“Guar is a low input crop and can be grown by even small and marginal farmers. So lifting the ban on futures will be in the interest of every farmer,” he says.
In his village Shiv in Nagaur district, no farmer “with the right mind” is thinking of selling his stock of guar.
But not everybody is waiting for higher prices. Ahipal Singh, a farmer from Kalau village in Shergarh, sold his produce for Rs. 10,000/quintal last month.
“Extremely low input costs, good productivity, longer shelf life and the fact that it restores soil fertility mean guar is always a profitable proposition. So unless you get really greedy, selling it is not a problem.”
“After I made the move, a lot of people here began selling their produce. Over the last 10 days, about half a tonne of guar has made its way to the market, which is a bit off the trend compared to other areas,” says Mr. Singh.
Alternatives
However, the astronomical rise in prices has led exploration companies to scout for cheaper alternatives like Xanthan gum and synthetic substitutes like carbon methyl cellulose, resulting in a fall in demand for guar gum.
That, along with an uninterrupted supply (once farmers begin selling), will make it difficult for guar gum to regain its premier rates.
If that happens, farmers holding on to their produce for higher prices, would be staring at a massive distress situation.
