Developmental efforts are already in progress in some countries to promote cultivation of castor seeds. If India delays in giving a strategic thrust , the country may lose its grip in the global market, felt Shvetal Vakil, general manager - agriculture commodity exports, Hindustan Lever Ltd, in an interview with Devendra Vyas. Excerpts:
The government has decided to permit futures trading in castor oil at the international level. Do you think it is feasible?
The government decision is a move in the right direction in view of the globalisation of trade. Today, exporters or overseas buyers are exposed to volatility due to the absence of a well-regulated futures contract where performance is guaranteed. This is a reason why some global players are not coming to India to buy directly, thus leaving trade in the hands of a limited number of parties.
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The introduction of futures contracts will provide an opportunity for widening of castor trade in the international market.
There are apprehensions in some quarters that low physical volumes may not bring about liquidity to futures trade. This may be partly true initially, but once the contract is operational, more and more players would operate on the exchange.
What is the present situation of exports in castor oil? How do you foresee the performance during the 1997-98 oil year?
Castor crop harvested in December 1997 was approximately 10 per cent lower compared with the previous year. Thus, exportable surplus of castor oil would be lower after taking into account domestic industrial consumption.
In the period from November 1997 and June 1998, based on soft information available, approximately 1.07 lakh tonnes of castor oil have been shipped out as compared with 1.24 lakh tonnes in the corresponding period last year _ a decline of approximately 14 per cent.
I do not envisage total exportable surplus to be more than 1.6-1.65 lakh tonnes for the current year. Thus, in the light of previous year's exports of 1.80 lakh tonnes, I foresee a shortfall this year.
What are your views on the government's import/export policy for oils and oilseeds?
There is a great deal of inconsistency in the government policy on imports and exports of oils and oilseeds. While there are reports of the government permitting imports of soyabeans, no formal announcement has been made so far.
Considering the fact that India is an oil-deficient economy, import of seeds with high oil content like sunflower and rapeseed should be far more desirable than soyabean which has relatively low oil content.
The government has taken positive steps towards removing exports of castor seeds from the restricted list. This will encourage a greater volume of commodity exports, leaving the margins derived out of value-addition and profits to overseas buyers.
Considering the fact that castor oil attracts import duty in the European Union while seeds do not attract any import duty, it may be a good idea for the government to consider levying an export duty on castor seeds to bring it on a level playing field.
A strategic promotional thrust is lacking in government policies on promoting exports. This is evident from the fact that while DEPB rates have been announced for castor oil, they are still under formulation for castor oil derivatives. An early finalisation of this would go a long way in building up exports of castor oil derivatives from India, thereby retaining profits derived out of value addition.
An important export commodity like castor oil, which has put India in a virtually monopolistic situation in global market, lacks export promotion support and it may be worth considering handing over this commodity in the hands of more serious trade bodies who can give due justice and promote of export of castor oil and its derivatives.
Developmental efforts are already in progress at different stages in some of the other countries to promote cultivation of castor seeds. Any delay on our part to give a strategic thrust may result in our losing grip in the global market.
How do you see the castor seed crop scenario in 1998-99?
A farmers' decision to plant a crop is motivated, to a large extent, by prices realised by them as well as those prevailing at the time of sowing. Over the last few weeks, castor seeds and oil prices have soared to historic levels.
Favourable weather conditions should motivate farmers to enhance acreage under castor cultivation at the cost of other cash crops which have not yielded such high returns. It is too premature to put numbers on the crop as sowing operations are still not complete. But I am optimistic of a better crop next year.
What is the present price situation as regards castor oil in the domestic and international market?
Castor oil prices in the domestic market have touched an all-time high of Rs 38500/T ex Gujarat and are not showing any immediate signs of retreat. Since India has a virtual monopoly for supplies to the global market, it is quite obvious that prices in destination markets are reflecting the trends recorded in the domestic market.
FOB Kandla/Mumbai prices have also shot up to a level of $940/950 per ton and prices in Europe are in the region of $1080/1090 per ton. At such high levels, there is a tremendous resistance from buyers.
It may be noted that castor oil is used as raw material for manufacture of value-added chemicals, which could be substituted by petroleum products.
Volatility of such magnitude can, in fact, harm long-term sustainable growth in the consumption pattern as consumers could switch over to substitutes.
Unsatisfactory hedging options in the domestic market has contributed to this volatility, and in the light of this development, I see a great relief forthcoming with commencement of international futures contract in castor oil.
What are your expectations as regards the price movement in the days ahead?
Fundamentally, there is no doubt that overall supplies have been lower this year and inadequate to match the demand. Thus, castor seed prices were expected to move up from September onwards when supplies would drop. However, on account of the cyclone that hit Kandla port in early June, there has been a significant advancement in prices.
Bearing in mind the fundamentals, the market would now be more weather-driven over the next 2-3 months and movement will depend on the crop prospects.