Guar Seed and Guar Gum Fundamental Report

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Sakshi Mittal

Economist

Knowledge Management Group

[email protected]

+ 91 22 66406568

Guar Seed And Guar Gum: A Fundamental Report

Guar seed is a crop that dominates the international business with Indian ascendancy in

Guar Gum. Guar a versatile crop with industrial uses and export potential has transformed

economic status of a number of farmers in India. As the guar gum, a derivative of the guar

seed has found a great potential in the manufacturing sector, the demand for the guar gum

and guar seed has grown manifold, providing farmers an incentive to increase the

production of guar seed. About 9 lakh families in Rajasthan and other states like Haryana,

Gujarat and Punjab depend on guar cultivation, according to as per the Commerce Ministry

estimates in 2006. Guar seed has now become a cash crop due to more than 150 guar gum

industries operating in India to consume any amount of guar seeds produced. Multiple uses

and benefits arising from guar bean acted as strong incentive for smallholder farmers to be

interested in growing these seed.

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Introduction

Guar or cluster bean (cyamposis tetragonoloba) is a drought tolerant annual legume crop,

mainly cultivated in the northern parts of India as a kharif crop. This seed has a spherical-

shaped endosperm containing galactomannan gum, which forms a viscous gel in cold water.

Guar legume plant is an agricultural product grown in arid zones of west and North West

India and parts of Pakistan. Guar seed is one of the few crops that can be produced in the

desert areas.

Guar Seed: Uses

Guar seed is mainly used for human consumption, cattle feed, medicinal purposes and also

for soil improvement. The immature pods are dried and fried as chips, and the green pods

are also cooked for human consumption. Plants are fed as green forage for cattle and the

beans are also boiled and fed to cattle, which is a good source of protein. Guar seed plants

also have medicinal importance—the leaves are eaten to cure night blindness, used as a

chemotherapeutic agent against smallpox, poultices for plague, cattle bellies, enlarged

livers, head swellings, bone swellings, etc., since it is a legume, commonly used as cover

crop and green manure.

But in the modern times, approximately 90% of total Guar seed produced is used for

production of Guar Gum and rest is used for culinary purposes and cattle feed, etc, because

commercial interest in guar seed revolves around the endosperm of the seed which is

ground to produce a powered gum used in a wide variety of products. The most important

industrial use of Guar Seed is in the form of Guar Gum. Manufacturing of gum from its

beans gives such astonishing results that it is considered `white gold’.

Guar seed consists mainly of three parts: germ, endosperm and husk. Guar gum is a very

important product of guar seed processing. Guar gum recovery normally comes around 31%

of total guar seed processed, whereas Churi and Korma account for 29% and 37%

respectively. Split/gum is further refined to guar powder, churi and korma are used as cattle

feed.

Major Producers

The major world suppliers of guar seed

production mainly concentrated in the Southern Asian continent as the climate there suits

well for the cultivation of this crop especially

conditions in Australia are also quite conducive to the cultivation of guar. Efforts have been

also made to promote cultivation of guar in Australia by the Department of Agriculture and

Rural Industrial Development Agency. Similarly it is reported that countries like China and

Thailand are also trying to grow guar. It is also grown in some African countries. However

the production is not on a large scale.

crop to grow properly. India contributes

Pakistan contributing to about 15% total world production, while other countries just having

a negligible share in the total global

Figure 1

Table 1: Guar seed Extract

Korma 37%

Churi 30%

Split/Gum 29%

Other 4%

Source: APEDA

of guar seed are India, Pakistan and United States, with


well for the cultivation of this crop especially, in the Indian sub continent. The agro

also quite conducive to the cultivation of guar. Efforts have been



nd are also trying to grow guar. It is also grown in some African countries. However

the production is not on a large scale. The climatic conditions in India are well

properly. India contributes to about 80% to the world guar p

about 15% total world production, while other countries just having

share in the total global production (Figure 1).

Figure 1: Country Wise Guar Production

Source: CMIE

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India, Pakistan and United States, with


in the Indian sub continent. The agro-climatic

also quite conducive to the cultivation of guar. Efforts have been



nd are also trying to grow guar. It is also grown in some African countries. However,

well-suited for the

about 80% to the world guar production; with

about 15% total world production, while other countries just having

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Geographic Distribution

In India the production of guar seed is mainly concentrated in the arid region of Rajasthan,

Gujarat, Haryana and some part of Punjab. Rajasthan is a leading producer of guar

accounting for about 75% of total production in India. Haryana and Gujarat place

themselves at the second and third positions regarding the production in India with 12%

and 11% respectively.

In Rajasthan, the districts where guar is produced are Churu, Bikaner, Jaisalmer, Barmer,

Nagaur, Hanuman Garh, Jodhpur, Ganganagar, Jaipur, Sirohi, Dausa, Jhunjhunu and Sikar.

The districts in Haryana indulged in the production of guar are Bhiwani, Gurgaon,

Mahendragrh and Rewari and the districts in Gujarat are Kutch, Banaskantha, Mehsana,

Sabarkantha, and Vadodara and Ahmedabad.

But now the share of the other states has also grown due the irrigation facilities. In recent

years the ratio of guar seed production under the irrigated land against the ratio of

production dependent on rainfall, has also grown in Haryana and Gujarat as farmers have

also started cultivating guar seed partially in irrigated land. In recent years output shares in

Haryana and Punjab has marginally increased as farmers are growing guar seed under

irrigated sources of these states. Also in some parts of country like Ganganagar in

Rajasthan, guar seed is cultivated under irrigated sources.

Different varieties of guar seed developed by the Central Arid Zone Research Institute,

Jodhpur had given an edge to the farmers of Haryana. In Haryana alone the production of

guar seed has increased four folds since 1991 to 2008. The production of guar seed in

Haryana has increased from less than one lakh tonnes during 1991-92 to more than three

lakh tonnes in 2007-08. Research carried out by the Regional Agriculture Research Station,

Triupati of Acharya N.G. Ranga Agricultural University shows that Guar can be more

productive in light soils under low and uncertain rainfall situations in Andhra Pradesh.

Two crops of guar crop can be grown in a year provided irrigation facilities are present. But

since nearly 60% of Indian farmland is without irrigation facilities, guar production is

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primarily dependent on monsoon rain, with the south west monsoon rain playing a crucial

role.

Agronomic suitability

Guar grows best in sandy soils and it needs moderate, intermittent rainfall with lots of

sunshine. Guar is a rain fed monsoon crop, which requires 8‐15 inch of rain in 3‐4 spell.

For effective guar cultivation, the crop needs two rainfalls before sowing, one rainfall when

the crop buds out and another when the crop comes up well and blossoming starts. Then it

requires plenty of sunshine and dry weather to come up really well. During harvesting

period it again needs good sunshine in order to dry up and become usable for industries.

Guar is generally sown after the monsoon rainfall in the second half of July to early August

and is harvested in October - November. The crop requires 3-4 spells of rain during seed

setting and maturing, which is during September first week and the end of September.

Normal rainfall results into good guar seed production. Guar seed production reached record

high levels in 2004 and 2008 as rainfall in the southwest monsoon acted as an advantage to

the guar crop prospects. Better-than-normal rainfall attracted farmers to increase area

under guar seed cultivation. As a result, area sown in Rajasthan—largest producing state in

India—rose to 1163.2 thousand tones and 1243.73 thousand tones, respectively in 2004

and 2008, respectively. Total production of guar seed in India reached record high of 1513.4

thousand tones in 2003-2004 and 1788.3 thousand tones in 2007-2008 due to increased

acreage and good rainfall.

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Figure 2: Total production of Guar Seed ‘000 tonnes

Source: CMIE

Since it’s a rain fed crop, its yields are highly susceptible to the amount of rainfall it receives

during the monsoon. The acreage fluctuation is very high both under good and bad

monsoon conditions. The lower the rainfall, the lower the yields would be in the particular

crop year. In 2009 the guar production declined by 27.31% to 13 lakh tonnes due to

unfavorable rainfall. India received scanty rainfall which acted as a serious draw back to

the guar crop prospects. India’s monsoon season in 2009 was the worst that India has

experienced since 1972. Monsoon rainfall in the Sri Ganganagar district (Rajasthan), which

includes Gharsana, dropped by 27% from its average, according to the Indian

Meteorological Department, not very different from the 23% drop across India. The yield

levels of guar seed crops declined sharply as the rainfall was insufficient at critical growth

stages. This resulted in sharp decline in the production levels in the year 2009.

Also much precipitation can cause the plants to become leafier, thereby reducing the

number of pods and the number of seeds per pod which affects the size and yield of the

seeds. For eg: year 2002-2003 was marked by a low production to the tune of mere 199.2

lakh hectares as compared to 1089.9 lakh hectare, due to excess rainfall. Due to the high

dependence on monsoon guar seed supply is highly erratic. Thus, production fluctuates from

2 lakh tonnes to 15 lakh tonnes annually varying with the level and intensity of monsoon

rainfall in the major producing areas.

0

500

1000

1500

2000

2500

3000

3500

4000

Jan

-79

Jan

-81

Jan

-83

Jan

-85

Jan

-87

Jan

-89

Jan

-91

Jan

-93

Jan

-95

Jan

-97

Jan

-99

Jan

-01

Jan

-03

Jan

-05

Jan

-07

Jan

-09

Figure 3: Guar seed

Source: CMIE

Value Chain

Guar seed has shelf life of more than 3 years without losing out on any of its properties or

qualities. Hence, guar seed can be stored for long time (up to 5

barest minimum maintenance and handling environment. The physical market of the

commodity involves speculators and stockists. The commodity is subjected to a long storage

period based on demand and market prices. The arrivals of Guar seed starts from end of

September in major markets (after Diwali festival) and extends for one month. Arrivals in

Ganganagar of Rajasthan, Haryana and Punjab starts

seed is cultivated under irrigation and harvested early. Arrivals in southern and central parts

of Rajasthan begin from end of October. Peak arrivals can be seen during October and

extend till the middle of November.

Guar seed Production, Yield and Acreage


uar seed can be stored for long time (up to 5-6 years). It requires the



on demand and market prices. The arrivals of Guar seed starts from end of


Ganganagar of Rajasthan, Haryana and Punjab starts by the end of September, since Guar

irrigation and harvested early. Arrivals in southern and central parts


middle of November.

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6 years). It requires the



on demand and market prices. The arrivals of Guar seed starts from end of


end of September, since Guar

irrigation and harvested early. Arrivals in southern and central parts


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Traders and stockists normally purchase guar seed during the peak arrivals and store for

longer period to get better price. Millers are active buyers during arrival period for

processing as the export demand begins during January - February.

Value Chain Of Guar seed Product

Farmer

Trader (mandi)/stockiest

Processing Unit (millers/split/powder)

Industries (export/domestic)

Guar Gum

Guar gum is the primary marketable product of the guar seed, as Guar seed is primarily

exported in the form of guar gum. India is the world’s second largest manufacturer of

processed food next to China, and has the potential of being the biggest with the food and

agricultural sector. The food processing industry is one of the largest industries in India-it is

ranked fifth in terms of production, consumption, export and expected growth. And among

the other processed foods category in India, guar gum captures the largest share at around

22%. The guar gum, also called guaran, is extracted from the seed of the leguminous

shrub Cyamopsis tetragonolobus (Leguminosae). It is termed as the best substitute for

locust bean gums. Jodhpur is the country’s leading centre of the guar gum manufacturing

industry.

The status of largest producer of guar seed has helped India emerge as a prevalent exporter

of guar and its derivative. Though guar gum constitutes the major proportion of the exports

there has been significant variation in the value of exports of various products of guar for

the period from 2005-06 to 2007-08. Another by-product korma and churi are both used in

cattle and poultry feed. And the demand for th

high prices of alternate cattle feed like soya meal. Since the prices of

lower than that of soya meal, these products have emerged

gum still holds the largest share because of its s

Guar gum treated and pulverized is the major by

share of about 71.7% in total exports

other major composition of exports with a share of about 26% in total

(Figure 4).

Figure 4: Percentage share of Guar Seed Derivatives In Exports

Source: Source: Rajasthan Krishi [government of Rajasthan)

Industry Issues

The exports of the guar splits has

the guar gum as a result of which in January 2011, in a meet at Kolkata the exporters of

guar told the Director General of Foreign Trade, Ministry of Commerce & Industry, that the

guar gum exporters are affected by the export of guar gum s

guar gum powder. The reason for the same is being attributed to the fact that the Vishesh

Krishi Gram Upaj Yojana (VKGUY) benefit being extended to guar gum splits and the benefit

cattle and poultry feed. And the demand for thes products have seen an increase

high prices of alternate cattle feed like soya meal. Since the prices of churi

lower than that of soya meal, these products have emerged as favorite substitutes

gum still holds the largest share because of its special properties.

Guar gum treated and pulverized is the major by-product that is exported by India with a

share of about 71.7% in total exports of the guar complex. Guar gum refined split is the

other major composition of exports with a share of about 26% in total guar co

: Percentage share of Guar Seed Derivatives In Exports

Source: Rajasthan Krishi [government of Rajasthan)

The exports of the guar splits has created some concerns in the minds of the exporters of


Director General of Foreign Trade, Ministry of Commerce & Industry, that the

guar gum exporters are affected by the export of guar gum split which is a raw material for



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increase following

churi and korma are

as favorite substitutes. But guar

product that is exported by India with a

. Guar gum refined split is the

guar complex exports

: Percentage share of Guar Seed Derivatives In Exports

Source: Rajasthan Krishi [government of Rajasthan)

the exporters of


Director General of Foreign Trade, Ministry of Commerce & Industry, that the

plit which is a raw material for



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is being passed on to the importers/buyers. Under the VKGUY scheme duty scrip benefits

are given to exporters to compensate them for high transport costs. Exporters of notified

products are entitled for duty credit scrip equivalent to 5.00% of the FOB value of exports.

In addition the duty credit may be used to import of inputs or capital goods as long as they

are freely importable under the ITC (HS). The benefit available to exporters guar gum split

(which is an input for guar gum) is not available to guar gum producers thus putting them

at a disadvantage vis-à-vis competitors abroad.

The disadvantage is caused by the fact that this preferential treatment to guar gum split

exporters has led to a boom in the guar gum industry in the competing countries despite

the fact that India produces nearly 75% of the world’s output. More so in countries like

China guar gum is processed and exported in powder form to other parts of the world thus

affecting India’s exports. China’s custom tariff on Indian Guar Gum powder is 15% and on

guar splits is 5%. Thus, China’s policy is to encourage import of raw material (guar splits)

from India and process it in their own processing industries and re-export it, rather than

importing finished products. While import tariff on guar gum imported from Pakistan is nil

according to the Commerce Ministry report, thus, there is clear discrimination between India

and Pakistan.

Guar Gum Uses

Guar gum remained a relatively obscure until its first industrial trial as an additive in paper

making. Guar gum was not known for its industrial application till in the times of World War

II, when there was shortage of locust bean crop and the paper and textile industry of the

world was searching for a substitute. They found as efficient alternative in the form of guar

gum and since then, this derivative of guar ruled over the locust bean and it was readily

accepted for application in many other industries.

Guar gum was first introduced to the petroleum industry in the early 1960, as a drilling fluid

additive because of its friction reducing and rheological properties. It later became a

primary component of water based fracturing fluids in which guar and its derivatives provide

cost effective performance. The most significant use of guar and its derivatives has been in

petroleum production, specifically in the area of hydraulic fracturing. Hydraulic fracturing

makes it possible to produce oil and natural gas in places where conventional technologies

are ineffective. It uses water pressure, under tight controls, to create fractures in rock that

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allow the oil and natural gas it contains to escape and flow out of a well. The success of that

introduction and an increasing demand has naturally attracted followers with new uses for

guar being continuously discovered since then.

As a result in more modern times, guar gum is used as an industrial application in mining,

petroleum drilling and textile manufacturing. Now it is used in both industrial and food

capacities.

• Food Processing: Many foods utilize guar as a special additive to improve handling,

smoothness, shelf life and other characteristics. Pet feed improved by the use of guar gum

in its formulation

• Bakery Industry: It is used in bakery industry, in bread, pastry, cakes, and cookies. On

dry mixing prior to making bread it helps to retain moisture and the weight of bread. It

keeps the bread smooth pliable and fresh for longer time and imparts milky white bleached

appearance to bread.

• Drug Industry: Guar gum, drug and other ingredients are mixed and compressed into

tablets. During dissolution studies, guar gum hydrates and forms a thick gel layer on the

tablet surface.

• Health: Guar gum decreases the cholesterol and triglyceride levels but guar gum or other

water-soluble, fermentable fibers increased the odd for colorectal cancer in a study of rats.

• Dressing and sauces: Improves the stability and appearance of salad barbecue sauces,

relishes, ketchups and others (especially highly acidic emulsions)

• Industrial uses: Guar Gum is used as a thickener and emulsifier in commercial food

processing. It is also used in paper manufacturing, textiles, printing, cosmetics and

pharmaceuticals. Guar is an all-natural ingredient, unlike other common thickeners such as

modified food starch and cellulose gum and has been shown to provide important health

benefits

• Explosive: Guar gum is used in the explosive industry because of its ability to efficiently

thicken the nitrate salt solution which is basic component of slurry explosive formulations.

The gums are readily cross-linked to from stable water-resistant gels

• Paper Industry: Guar gum is used as a wet-end additive. It gives denser surface to the

paper used for printing. It is also useful in foresheet formation, Mullen bursting strength,

fold strength, tensile strength, measure of the force required, to pull a fiber from the

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surface of sheet, machine speed that all parameters are increased and porosity of the paper

is decrease

• Mining: Guar gum is used in mining potash, gold, copper and platinum group metals as a

flocculent and as a depressant. Reliance industries manufacturers a range of modified guar

gum products tailor-made for the mining industry

• Oil, Gas & Well drilling: Guar gum and guar gum derivates are used in the fracturing of

oil, gas and water wells. The guar gum is used to carry a river of sand and pumped into the

ground at high pressure. This fractures the ground and then fills the fractures with sand,

thereby making the ground more permeable and thereby increasing the recovery of oil, gas,

or water in the existing well

• Cosmetics: Guar is used in ointments, lotions, hair shampoos, hair conditioners

,thickening agent, lubricating agent, suspending agent, detergent compatible thickener,

protective colloid, film forming agent, use in tooth paste, shaving cream etc.

• Textile: Guar gum and guar gum derivates are used in to major textile applications as a

printing thickener and as a binder in the sizing of yarns, particularly for denim sizing. In the

textile printing industry, guar gum is used as a printing thickener to keep the dyestuff from

spreading on the fabric (add photo of rotary printing machine).

• Fish Farming: Guar gum is used as a binder in the fish feed pellets. The binder keeps the

pellets from disintegrating quickly when placed in water and greatly reduce the consumption

of fish feed in the pond.

• Miscellaneous uses: Guar Gum powder is also widely used in other products such as

photography, water treatment, fire fighting, incense stick, mosquito mat, soups, snacks,

puddings, noodles, jam, ceramics, synthetic resin, carpet painting, wall Paper, water based

paints, battery electrolytes, printing inks, polishes.

Figure 5

Source: APEDA

International Trade

Though Pakistan trails India in the global trade of Guar, India, is currently the only supplier

to the world market because of lower

guar seed, as its crop was destroyed due to floods. Even though guar

USA, Brazil and in some African countries like South Africa, Malawi, Zaire and Sudan, but

the quantity produced is too negligible. Indeed, these countries are major importers of guar

and its derivatives, as they consume more of guar

India exports nearly 70% of its produce to the oil producing countries including Gulf

countries, US and European nations. The oil exploration sector is a major demand driver for

guar gum, with the commodity being extensively us

world. Since US has the largest rotary drilling rig, US is the largest consumer and importer

of guar gum. US alone constitute to around 70 thousand tonnes of guar and its derivatives

demand. The number of drilling

accounting for about 70% of the total, followed by the Far East, Eastern Europe and South

America. Not only has the higher oil drilling activities increased the demand for the guar

5: Percentage Share Of Guar Gum Use


because of lower production in Pakistan, the second-largest producer of

guar seed, as its crop was destroyed due to floods. Even though guar is also cultivated in



and its derivatives, as they consume more of guar gum than what is produced.



guar gum, with the commodity being extensively used for fracturing of oil wells across the



demand. The number of drilling activities in North America remains the highest in the world,



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largest producer of

is also cultivated in



gum than what is produced.



ed for fracturing of oil wells across the



activities in North America remains the highest in the world,



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gum, but the improvements in horizontal drilling and hydraulic fracturing that has taken

place due to the use of guar since 1960, has also led to the increase in drilling rigs, in turn

also leading to higher demand for guar gum.

Germany and China account for about 24% of global consumption together. In China guar

gum is used is used in the manufacturing and the oil drilling and food products industry. But

large amount of guar gum is used in the Chinese oil drilling activities. Not only is China the

second largest consumer of oil but also since oil was discovered in China in the 1980s,

private oil wells mushroomed with many skirting the state-owned large oil wells. Therefore,

China has also emerged as an important consumer of guar gum. In fact India’s importers

list of guar gum includes of all the oil producing countries such as US, Europe, South Africa,

Saudi Arabia, UAE, Iraq, Qatar and Kuwait etc. Apart from these countries China is the

second largest importer of guar gum.

Therefore, the demand for the Indian guar gum is positively related to the oil drilling

activities and indirectly linked to the crude oil prices. Strong trends toward higher crude oil

prices stimulate companies’ capital budgets and future investments, driving exploration and

production activities, which in turn leads to an increased demand for guar gum. Certainly

global demand for guar gum has increased over the years, owing to a steep rise in demand

in the recent times, on account of its increasing use in petroleum industry. Empirical

evidence can be drawn from the year 2009, when the guar gum exports from India declined

by 15.51% to 2,18,459.73 Mt as compared to 258567.55 Mt in 2009 following reduced

demand from the US following the reduction in the oil drilling activities in the country. US

oil and natural gas drilling in 2010 remained below 2008 levels, according to API’s 2010

Quarterly Well Completion Report: Fourth Quarter. In 2010, a total of 37,892 wells were

drilled, up 12% from 2009 but down almost 33% from 2008.

Figure 6: Major Destinations Of Indian Guar Products

Source: APEDA

Apart from its use in oil drilling activities the largest market for guar gum is in the food

industry. Food grade guar gum accounts for about 30% of a total

US guar gum is generally recognized as safe with differing percentages a

allowable concentration in various food applications. In Europe, guar gum has EU food

additive code E412.

Though the European Commission (EC) has tightened imports of guar gum from India

following the discovery of high dioxin levels

the guar gum demand is expected to rise further in the oil drilling industry

soaring crude oil prices have boosted the exploration activities, which in turn has increased

the demand for guar gum. Oil-

2011, with more of them working in the US than at any time in the previou

years. Moreover, in May 2011, US President Barack Obama took aim at Big Oil in May 2011,

calling for an end to taxpayer subsidies for the highly profitable industry while also offering

petroleum firms new leases and incentives to increase produ

carrot in the form of expanded oil leases in Alaska, the Gulf of Mexico and elsewhere. There

: Major Destinations Of Indian Guar Products


industry. Food grade guar gum accounts for about 30% of a total Indian guar

US guar gum is generally recognized as safe with differing percentages a


European Commission (EC) has tightened imports of guar gum from India

following the discovery of high dioxin levels- as reported by the Export Import Bank

the guar gum demand is expected to rise further in the oil drilling industry

oaring crude oil prices have boosted the exploration activities, which in turn has increased

-directed rigs in global set up broke another record in March

2011, with more of them working in the US than at any time in the previou



petroleum firms new leases and incentives to increase production. Obama also offered a


15


Indian guar export. In the

US guar gum is generally recognized as safe with differing percentages are set for its


European Commission (EC) has tightened imports of guar gum from India

as reported by the Export Import Bank of India

the guar gum demand is expected to rise further in the oil drilling industry. Additionally

oaring crude oil prices have boosted the exploration activities, which in turn has increased

directed rigs in global set up broke another record in March

2011, with more of them working in the US than at any time in the previous nearly 24



ction. Obama also offered a


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are also plans to lease new areas in the Gulf of Mexico along with new incentives for

industry to develop their unused leases both on and offshore. All of these are just pointing

towards the positive future demand potential as the oil drilling activities hold the key for

guar gum demand.

The use of gum in industry is likely to only increase in future as new applications and

substantial market growth are expected. In fact, the US Food & Drug Administration

department has approved guar as a replacement to fats in food. Guar is a cheaper

substitute to Xanthan gum (pure culture ferment) or locust bean gum. The processed food

industry in India is expected to grow at a rate of 10% during 2010-2015. The food

processing industry is on a high as Indians continue to have a feast. The Confederation of

Indian Industry (CII) has estimated that the food processing sector has the potential of

attracting US$ 33 billion of investment in 10 years. Fuelled by what can be termed as a

perfect ingredient for any industry – large disposable incomes - the food sector has been

witnessing marked change in consumption patterns, especially in terms of food. Increasing

incomes are always accompanied by a change in the food basket. And an increase in the

processed food industry will lead to an increase in the demand for the guar gum. While in

South Africa guar gum finds its major uses in gold mining.

India has registered its presence in a very big way in guar exports since 1956, after which

pioneer manufacturer and exporters of Guar Gum from India (for example, Premcem Gums)

was started in 1960, after guar was introduced to the petroleum industry for its friction by

the US.. From data it can be seen that demand over the period has grown consistently

(Figure 7 and 8).

Figure 7

Figure

Source: DGFT

7: Exports of Guar Gum Refined Spilt

Source: DGFT

Figure 8: Exports Of Guar Gum

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Guar Seed and Guar Gum as Investment Assets

The broad spectrum of end uses of guar gum, with the industries using guar gum, growing

with each passing years, has led to the increase in the demand for the guar gum from the

international markets, and making this commodity a good asset for investment.

Volumes in guar seed and guar gum futures had been rising continuously since August 2004

after the contract was launched in April 2004. Open interest went above one-lakh tonnes in

guar gum futures within the second year of the trading, spread over several participants,

which indicates genuine trading interest in the commodity. According to various reports the

huge volumes were seen primarily because traders who were trading in the unorganized

markets were now seen shifting to the organized markets, i.e. the commodity exchange.

Guar as a commodity was already being traded for large quantities in informal markets; a

good portion of this was migrated to the formal markets on the Exchange platforms. But

the unorganized markets had a lot of their own side effects for both the farmers and the end

users as there existed a huge value chain in these markets, which led traders shift to the

organised markets. There were huge intra seasonal and inter seasonal price fluctuations,

due to the lack of price discovery and risk management for the growers, manufacturers and

exporters which made it difficult to predict the commodity price trend. The domestic

growers had problem in convincing the buyers i.e. manufacturers and exporters about the

price situation. As guar seed is a rain-fed crop uncertainty about the yield and production

existed. And since the Guar seed has shelf life of more than 3 years without losing out on

any of its properties or qualities stockists and traders played an important role in price

fluctuations when the supply was short. Lack of price certainty also led to frequent defaults

by Indian exporters because of the difference in the price realized overseas and prices

prevailing domesticially. Therefore, futures traded on organized exchanges acted as one of

the major factors in removing the default risk.

Benefits of Organised platform of trading to farmers

The farmer community has actually benefited on account of the better prices which were not

available to them earlier in the absence of the existence of such transparent trading

platforms for futures trading. The higher price realisation for the farmers has been achieved

19

by shrinking the value chain in agriculture which according to a study by NABARD provides

the farmer with not more than 1/3rd of the final price being paid by the consumer.

Therefore, while certain users who had held oligopolistic power earlier have been affected

adversely by rising prices and it is reported that approximately four lakh farmers engaged in

guar farming stand have benefited from the same phenomenon. From the table below, we

can see the price that a farmer received for each quintal of guar seed.

Table 1: Guar seed price received by farmers

Guar seed price received by farmers ( Rs / quintal)

FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY06

1st Qtr 1,675 1,983 1,297 823 840 1,217 1,082 1,491

2nd Qtr 1,981 2,173 1,267 821 1,575 847 1,625 1,515

3rd Qtr 2,330 1,901 998 698 1,434 978 1,669 1,558

4th Qtr 2,408 1,387 828 758 1,439 958 1,534 1,596

Note: the price has been derived by discounting 6% from the mandi price on the last day of

each quarter of the financial years. 6% has been arrived by aggregating 2% as agent

commission, 2.5% as Sales Tax and 1.5% as Mandi Tax.

Source: NCDEX

Introduction of futures trading in the guar seed complex not only helped the farmers but

also acted as one of the extremely useful feature to guar manufacturers since they provide

an excellent hedging mechanism and promote transparency within the trade (Table 1 and

2).

The better price realization of the farmer on account of the fair price discovery process

brought about by futures trading in guar (launched in April 2004) has resulted in the

narrowing of the gap between the realization of the exporter and the farmer. The price

realized by the exporter was 37.5 % greater than the realization of the farmer in 2003-04,

the price disparity has since reduced to 9.2 % by 2005-06. Clearly, farmers have stood to

gain with the introduction of futures trading.

20

Table 2: Narrowing of gap in realization between the exporter and the farmer

Source: DGFT

Note:* April- Dec

NCDEX also announces spot prices for Guar seed relating to the designated delivery center

and specified quality parameters through the process of polling a set of market participants

representing different segments of the value chain such as traders, importers, exporters,

processors, etc. The process of polling (through bootstrapping mechanism) is done to arrive

at a representative, unbiased and clean ‘benchmark’ spot price for Guar seed. The security

of data and randomness of polling process ensure transparency and correctness of prices.

One of the economic functions of a commodity exchange is price discovery and whether this

function is being served or not can be seen by comparing the movement of the spot prices

with the near month futures price and see if they move together and also if they converge

on expiry. When we plot spot and near-month futures prices of guar seed and guar gum we

see a good co-movement and convergence (Figures 9 and 10).

Quantity

(in MT)

Value

(in Rs

crores)

Value (in

Rs/MT)

Exporter’s

realization

terms of

the value

of Guar

seed (in

Rs/ MT)

Farmer

realization

(in Rs/

MT)

Realisation

of exporter

over farmer

(in %)

2001-02 32,961.36 101.3 30,736.60 11,383.92 8,300 37.15

2002-03 41,337.02 180.5 43,668.48 16,173.51 14,070 14.95

2003-04 38,072.30 153.2 40,231.38 14,900.51 10,840 37.46

2004-05 49,801.43 221.7 44,508.72 16,484.71 14,080 17.08

2005-06 * 30,881.99 148.3 48,008.40 17,780.89 16,280 9.22

Figure 9: Co-Movement of Spot And

Source: NCDEX

Figure 10: Co-Movement of Spot And

Source: NCDEX

Movement of Spot And Near-Month Futures Prices Of Guar Seed

Movement of Spot And Near-Month Futures Prices Of Guar Gum

21

Prices Of Guar Seed

Futures Prices Of Guar Gum

Price Behavior

There are no Government rules and regulations governing the production, distribution,

marketing, exports or imports of the commodity therefore the market forces determine the

prices. Guar being export oriented commodity its price behavior in domestic marke

largely determined by the overseas demand of guar products. And since the guar products

demand is largely dependent on the number of oil drilling rigs, the domestic guar prices are

indirectly linked to the crude oil prices, as higher crude oil prices

activities, which in turn increases the expectations of higher demand for guar gum and guar

seed. There is quite a bit of co

guar seed can be seen from the following chart.

Figure 11: Co – Movement of Guar seed, Guar Gum and Crude Oil Prices

Source: NCDEX, EIA



prices. Guar being export oriented commodity its price behavior in domestic marke



indirectly linked to the crude oil prices, as higher crude oil prices leads to higher drilling


There is quite a bit of co-movement between the crude oil prices and guar gum and

seen from the following chart.

Movement of Guar seed, Guar Gum and Crude Oil Prices

22



prices. Guar being export oriented commodity its price behavior in domestic market is



leads to higher drilling


between the crude oil prices and guar gum and

Movement of Guar seed, Guar Gum and Crude Oil Prices

23

The first four months of the 2011 provides a good insight about the correlation between the

crude prices and the guar gum and guar seed prices (Figure 11). Guar seed prices and guar

gum prices has reached a record level breaching Rs. 3000 per quintal mark and Rs. 8000

per quintal mark respectively, in the beginning of the 2011, while the crude oil prices has

touched a two year high level, breaching the $100 a barrel mark. Oil companies are

responding to recently elevated oil prices. Many are in fact scrambling to find and produce

more oil. Oil company giants are planning to spend nearly half-trillion dollars in 2011 to find

and extract oil and natural gas in order to take the advantage of higher oil prices, according

to a new survey by investment bank Barclays Capital.

Oil-directed rigs broke record in the second week of March 2011, with a number of them

working in the US than at any time in the previous nearly 24 years. The oil rig count only

broke 800 less than two months ago for the first time in 24 years. The driver here is

continued high and still skyrocketing oil prices in the early 2011. In all, the higher oil drilling

activities has led to the expectations of higher guar gum demand owing to an increase in

the demand from the oil sectors, which drove the guar gum prices to a record high level.

The guar gum prices and guar seed prices have escalated by 48.44% and 9.34%,

respectively in the year till date. While the oil prices have edged up by 24.67% in the year

till date.

According to the latest figures provided by Agriculture and Processed Food Products Export

Development Authority (APEDA), so far India’s guar gum exports for the period April-

December 2010 surged 82% to 279,197 tonnes as compared to 153,404 tonnes recorded

during the same period last year, as a result of which market participants are further

anticipating an increase in the guar gum demand, leading to an constant uptrend in the

guar seed and guar gum prices.

Price of any commodity is determined by the interaction of supply and demand. Market price

is dependent upon both of these fundamental market forces. Apart from the demand factor,

a huge fluctuation in domestic production of guar seed also affects the prices to a great

extent. Though broadly on a long term basis the guar prices depend on the international

demand scenario, the supply of the guar seed depends upon the monsoon season.

Therefore, the production of the guar seed also plays a major role in the movement in the

guar prices. Since guar seed is a rain fed crop the prices of guar fluctuate at times mainly

due to volatility in its production which is heavily dependent upon monsoon. Rainfall and

prices have a negative correlation as produc

the guar crop is largely a rainfed crop.

Figure 12: Correlation Between Guar Seed Production And Guar Gum And Guar

In the medium term, guar seed and guar gum prices

and August. As in July-August the sowing takes place. Higher sowing activities

market’s bearish about the prices

decline, it turns bullish for the prices

monsoon season. While after sowing, before the harvest periods if the monsoon season

turns unfavorable before the harvesting period than it leads to an anticipation of reduced

output acting bullish for the guar prices, while if the monsoon seasons turns favorable,

prices generally turns lower.

November, which once again

(Figure 13)

prices have a negative correlation as production is largely dependent on the rainfall given

the guar crop is largely a rainfed crop.

: Correlation Between Guar Seed Production And Guar Gum And Guar

Seed Prices

Source: NCDEX, CMIE

In the medium term, guar seed and guar gum prices fluctuates mostly in the months of July

August the sowing takes place. Higher sowing activities

prices; on the other hand if the sowing activities witness a

decline, it turns bullish for the prices. And the sowing activities completely depend on the



he guar prices, while if the monsoon seasons turns favorable,

prices generally turns lower. Arrivals generally happen in the months

November, which once again leads to price volatility of the guar gum futures

24

tion is largely dependent on the rainfall given

: Correlation Between Guar Seed Production And Guar Gum And Guar

fluctuates mostly in the months of July

August the sowing takes place. Higher sowing activities make the

if the sowing activities witness a

. And the sowing activities completely depend on the



he guar prices, while if the monsoon seasons turns favorable,

of October and

of the guar gum futures contracts.

Figur

Source: NCDEX

With the demand for guar and its products increasing with each passing year, the supply of

guar seed has not increased at the same pace. The average production of Guar seed in the

country is 10-11 lakh MT and fluctuates largely from year

If we glance through the beginning of the 2011, one can notice that besides higher overseas

demand, low carryover stock also led to the rise in the price of the guar seed and guar gum

prices in the first four months of 2011. The carryover stock of guar gum had reached a

record low level for the current year, which has trigger prices to shoot up further. For the

year 2010/11 stock are expected to fall below 20 lac bags which lowest endi

entire decade. The stock are expected to decline to below 20 lac bags from 34 lac bags in

2009/10 and as high as 65 lac bags in 2008/09.

Figure 13: Guar Seed Price Volatility



MT and fluctuates largely from year-to-year based on rainfall pattern.





year 2010/11 stock are expected to fall below 20 lac bags which lowest endi


2009/10 and as high as 65 lac bags in 2008/09.

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year based on rainfall pattern.





year 2010/11 stock are expected to fall below 20 lac bags which lowest ending stock in the


26

Table 4: Supply Demand Scenario

2004/0

5

2005/0

6

2006/0

7

2007/0

8

2008/0

9

2009/1

0

2010/11

E

Production 48 60 73 110 85 40 90

Carry In 75 63.96 44.88 40.7 70.7 65.7 24.7

Total

supplies

123 123.96 112.88 145.7 155.7 105.7 104.7

Exports 53.04 72.08 69.18 72 82 73 93

Local

Consumptio

n

6 7 8 8 8 8 8

Ending

Stocks

63.96 44.88 40.7 70.7 65.7 24.7 19

Source: NB Research, APEDA

Therefore, the estimated production, carry forward stock and demand play the major role in

the determination of the prices leading to huge volatility in its prices. The prices can

sometime stay stable and then rise or fall abruptly.

Outlook

Looking forward, or the year 2010-2011, the guar seed production is expected to remain

good, as the India Meteorological Department has forecast a near-normal monsoon, well

supported by even distribution of pre-monsoon showers in almost all states, which has

enthused farmers to undertake more sowing. The Met department’s long range forecast for

the 2011 south-west monsoon season (June to September) is that the rainfall for the

country as a whole is most likely to be Normal (96-104% of Long Period Average (IPA)).

There is very low probability for season rainfall to be deficient (below 90% of LPA) or excess

(above 110% of LPA). Preliminary reports suggest a higher acreage area under the crop so

far this year. Nevertheless, even if the monsoon remains normal in June, much would

depend upon the overall rainfall in July, which is the plant's germination stage. According to

the Rajasthan farm Department, Guar seed output in Rajasthan in the current season is

estimated at 14.9 lakh tonnes. The forecasted Indian output this year is much higher than

the 10 lakh tonnes of 2009-10 and 13 lakh tonnes in 2008-09.

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Table 5: Cluster bean scenario In Rajasthan

Year AREA

(thousand

ha)

Production

(thousand

tones)

Productivity

(kg/ha)

2006-07 2809 658 234

2007-08 2910 1243 427

2008-09 3316 1261 380

2009-10 2581 201 230

2010-11 2952 1488 504

Average (2006-10) 2914 970 355

Average (2001-05) 12011 589 244

%

Increase/Decrease

Over 2001-05

44.9 64.68 45.49

Source: Rajasthan Krishi [government of Rajasthan]

Lower production of Guar in the previous year has led higher demand of guar from stockists

as they are going for additional stocking of the produce till the fresh arrivals in the month of

October and November.

Guar gum exports from India are expected to be quite good in the current year amid robust

demand from oil producing countries, with the rise in crude oil prices. Meanwhile, lower

supplies from Pakistan, the second largest guar producing country next only to India, will

push up guar gum exports from the country. The export from Pakistan declined as the crop

got destroyed due to floods last season. Nonetheless, even if the crude oil prices witnesses

some downtrend, the guar gum exports are likely to remain strong, especially from US, if

there is an increase in its oil drilling activities The demand of guar gum from the US food

processing industry is also seen strong. US Food & Drug Administration department has

approved guar as a replacement to fats in food.

The commercialization of guar seed and its derivative has acted has expanded the exports

basket of the Indian economy and farmer’s economy and role thereby augmenting to a

source of foreign exchange earnings. Despite the importance of this crop the supply of guar

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seed still faces some constraints, as it is largely grown in rain fed areas with extremely low

rainfall; therefore productivity is low and production entirely dependent on rainfall. More

research on improving the yield of the guar crop is needed. Only one research station,

namely Agricultural Research station, Bahawalpur in whole of the country is conducting

research on guar since 1984. Since then, only three varieties i.e. 2/1, BR-90 and BR-99

have been developed for fodder purpose. The varieties for seed purpose don’t exist.

Therefore, these is a dire need to strengthen the research on guar to develop such varieties

which are not only higher yielder in terms of seed but also process the higher gum and

protein contents. Guar producers need to be assured of good and reasonable prices of guar

so that it acts as an incentive to increase its production by providing remunerative return to

the guar producers.

References:

Directorate General of Foreign Trade (DGFT)

Centre for Monitoring Indian Economy (CMIE)

Agricultural & Processed Food Products Export Development Authority (APEDA)

National Commodity Derivative Exchange (NCDEX) Business Line Export – Import Bank Of India Rajasthan Krishi [Government of Rajasthan] US Energy Information Administration (EIA)

Disclaimer: This report has been prepared by the Knowledge Management Department of

NCDEX Limited for the purpose of information dissemination. The news reported is from the

stated sources and does not necessarily reflect the views of NCDEX. The facts are reported

from publications and have not been checked for authenticity. NCDEX and its employees will

not be responsible for any decision taken by the reader based on this report and are advised

to take independent advise on the commodity(is) dealt in this report .

Guar Seed and Guar Gum Fundamental Report

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