Exporting Castor Oil
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Owing to its variety of end-uses, castor oil is one of the most sought after plant oils. But reduced production and fall in its global prices, have made it a tough commodity to make big profits out of through exports. The future appears encouraging though.
Centuries ago, the castor plant was revered because of its healing properties and referred to as “Palma Christe”, apparently because its leaves resembled the hand of Christ. Research suggests that castor oil was used for therapeutic purposes in ancient Egypt. The science and research on therapeutic value being sparse and the seed or bean being toxic to the human body in general, unless treated and labelled as edible, castor oil is used mostly for industrial purposes.
Castor seed (Ricinus Communis) is one of the major oilseeds cultivated in arid and semi-arid regions. According to experts, most suitable soils for castor cultivation are deep, moderately fertile, with slightly acidic conditions, well drained, and sandy loams. India, having the ideal conditions of cultivation, has been enjoying a virtual monopoly in this segment, as is evident from the fact that the country accounts for 75% of the total castor seed production of the world, followed by China and Brazil. In India, Gujarat is the major castor oil producing state accounting for approximately 75% of the total domestic production, followed by Rajasthan and Andhra Pradesh.
Castor oil of non-edible grade is renowned the world over as one of the most versatile of all oil types for industrial purposes. It’s used extensively in wide-ranging commercial segments including in the manufacturing of cosmetics, paints, synthetic resins, adhesives, brake fluids, lubricating greases among others. Some of the properties that make castor oil ideal for industrial purposes are its high specific gravity, thickness and hydroxyl value. This is perhaps the reason that the exports of the non-edible grade of castor oil has grown by about 12 times (by value) over the last decade, from $56.17 million in FY2006 to $703.81 million in FY2015. Exports of the edible grade, on the other hand, has nose-dived over the decade. There was a time, in FY2006, when India exported $134.69 million worth of the edible grade, which was more than double that of the non-edible grade, whereas in FY2015 the export value has dropped to a miniscule $0.16 million. The demand for the edible variant fell sharply in FY2009 and has been declining ever since. A big reason as industry participants claim for this fall is the availability of cheaper edible alternatives.
India, as the largest producer and exporter of castor oil in the world, is responsible for almost 83.65% of total global exports in this segment. Its main trading partners in this specific sector are China, Europe, Thailand and Japan. China has been one of the biggest growth drivers for castor oil due to its demand for sebacic acid (a basic industrial chemical compound) which is developed from this oil. China currently imports 30.67% of its total castor oil requirement, valued at $215.87 million, from India. However, despite these glorious numbers, India continues to be a price taker and not a price setter in the global castor oil market. One major reason being that India became the largest producer of the seed by default. Brazil, which in the 70s was the largest producer of castor seeds in the world, moved away from this seed to soyabean which has a higher yield and greater export demand for both its beans and oil. So did other major countries, leaving India with a virtual monopoly. Ironically, with synthetic substitutes being available at cheaper prices, India has not been able to leverage this monopoly.
"Although castor oil exports will rise this year, margins will remain low"
Veeresh Hiremath, Research Head – Commodities, Karvy Comtrade reasons that since the consumption within India is limited, the country depends on other countries to get buyers for castor oil. “More production is happening in India due to an increase in acreage and yield levels. Major importing countries, mainly industrialised nations, require more castor oil for their industries and they have the control over price. Hence, India has to obtain export prices to clear off its inventories,” says Hiremath.
Besides, a lack of adequate infrastructure and value additions are a couple of factors which are also responsible for making India a weak player on the price front. Experts suggest that this anomaly can be corrected if the industry expands the market by developing castor oil derivatives and invests in R&D. They unanimously believe, if the industry works as a more cohesive unit, India could soon be in a better situation. “India is the largest producer of castor oil and the entire world is dependent on it. By that logic, we should be the price setters easily. If this was the scenario in China, they would have been calling the shots. Here, we all cut corners and the entire industry is working against each other rather than as a whole. The situation could be addressed considerably if we were more united as an industry,” feels Samir Patel, Director – Exports at Shivam Agro Process, a Palanpur (Gujarat)-based manufacturer and exporter of castor oil. This is a sad situation to be in considering India’s monopoly in the trade.
In India, the planting season is typically during July or August and harvesting is done during the months of December or January. In the current Kharif season, castor seed has been sown in an area of 11.01 lakh hectares against 10.19 lakh hectares planted last year. “This acreage is above the five-year average acreage of 10.36 lakh hectares. This increment in sowing area, despite the erratic monsoon conditions, shows that the farming community in India still has huge aspirations from castor seed and its oil. It is highly expected that castor acreage will increase in future,” adds Hiremath.
Despite being the biggest producer and exporter of castor oil, India obtains export prices that hardly reflect this monopoly.
Following the dip in export volumes last year, it is predicted that there would be an increase of 30% in castor oil exports in the current fiscal. Factors such as the rising demand from China, US and EU, as well as more stable prices this year, are helping in getting the numbers back on track. But does this increase in global demand in any way imply an impact on the domestic market? “There will be no impact on the domestic market since a very small proportion – only about 50,000 or 60,000 MT – i.e. less than 10% of total production, is used for domestic consumption. An average increase of 5% in demand is witnessed every year. If the castor oil prices are higher, people end up going for soybean oil as a substitute instead,” explains Patel.
The Solvent Extractors Association of India (SEA) forecasts that the Indian monopoly of Castor production in coming years could be challenged if some Brazilian companies succeed in their efforts to plant high-yielding beans on large tracts of lands in Brazil. On the price front, consuming markets are expected to remain well-stocked since a lot oil is lying repositioned and this will put a check on prices. The association points at the need for taking simple steps such as simplifying GST refund to ease the financial strain on exporters, especially in the biggest castor oil producing state Gujarat. Other incentives to exporters such as those related to technology can also help to enhance the productivity. Investment by the government in R&D for better quality hybrid seeds, setting up of the necessary agri-infrastructure and imparting knowledge to improve the yield of the crop could boost castor seed production in the country. India is in a sweet spot when it comes to leadership in production. But given the near zero to negative margins in exports of the commodity at present, recommendation would be to revisit the idea after the next harvest. And ambitious though, but perhaps by then, India will have started calling the shots.
Castor seeds have an oil content of about 50%.