Just like Malaysia and Indonesia are the largest producers of palm oil, India is the largest producer of castor oil. India exports roughly 6000 crores’ worth of castor oil per year. We supply about 85-90% of the world’s demand of castor oil and its derivatives (things made from castor oil).
This year, the industry is seeing a strange phenomenon. China, which usually buys castor oil, is trying to buy raw castor seeds in huge quantities.
The Solvent Extractors Association of India (SEA), the industry body that deals with extraction, has written to the Union Minister for Commerce and Industry. They want to notify that China may be buying to create national reserves of castor and want the Commerce minister to tax or ban exports.
Why should we be worried if they buy seeds instead of oil?
- Processed products bring more money/revenue
Coconut costs ₹ 90-100 per kg. But coconut oil costs ₹ 180 per kg. Why is that? Because someone has taken the trouble to extract the oil from the coconut.
When we work on something to create something else of value, that is called processing.
Obviously, when someone buys processed oil, India makes more revenue.
Further, this export industry helps provide employment to many people.
- It makes the raw material more expensive.
Ram is a castor farmer. Usually, he sells to his produce to a castor oil mill at ₹ 40 per kg. Now, a Chinese buyer comes and offers 45 ₹ per kg. The castor oil mill has to either match that price, or forget production. If the mill owner matches that price, his cost of raw materials immediately goes up by 12.5% (5 ₹ per kg).
But, isn’t that good for farmers?
Yes. The prices of castor have been rising since May-June this year. The price per quintal (1 quintal = 100 kgs) was about ₹ 3600 in June and is around ₹ 4200 now. But, overall, for a country, it is more profitable to sell processed goods than primary (agricultural) produce. Because the margins are higher on processed goods.
Summing Up
The communication about bulk buying by China is being made by the industry body. During Jan-Sep 2019, India exported castor oil worth 4804.17 ₹crores. In 2020 for the same period, the figure is 3653.73 ₹ crores. This is in spite of a 10% increase in the quantity being exported. The industry body would like the commerce minister to consider an export tax on castor, or to completely ban exports of this commodity.