Sunday, 30 September 2012

Grow, baby, grow - all the guar you can

I don't know what to make of this story. An economics soap opera ? How the most unexpected things can happen  ? How sometimes prosperity can hit you from the strangest of directions ? Read on - judge for yourself.

The story starts in a very boring manner. Everybody knows Americans guzzle gas. With the Sheikhs turning the screws, Americans are feeling the pinch. Ouch - the price of oil is hurting. Drill baby drill, is fine, but oil is, alas, not to be found. Need new forms of cheap energy so that Americans can continue to guzzle away. Suddenly they discovered a new "source" - Shale gas.  Apparently natural gas is  found in rocks called shales. And apparently shale gas is rather plentiful in the US. Wonder of wonders, use of shale gas even releases lower greenhouse gases than evil Oil.. Voila, the new gold rush is on. 

All very good. What's new. This sort of thing happens all the time. The real interesting bit is that, in order to extract this gas, you have to do "hydraulic fracturing" or "fracking". Without getting too technical, an essential ingredient in this process is an obscure agricultural product called guar gum. You simply can't extract the gas without guar gum ! Guar gum is derived from the , rather ordinary, guar bean.

Cut to Basni, on the outskirts of Jodhpur in Rajasthan state in India. This is a drought prone area, near the desert. The sight of fat , sweaty Americans is not new in this area as they come to tour the Thar desert and see the palaces and forts of Rajasthan. But suddenly the villagers started to see far more Americans than usual. This lot was different. They did not want to see forts or palaces. They wanted to buy all the guar you had !

You see, Rajasthan is the guar producing capital of the world. The farmers here are mostly poor - this is after all desert area. They have been cultivating guar for centuries to feed their cattle. For some strange reason guar doesn't grow well anywhere else in the world. 90% of guar is grown in India - the balance 10% in neighbouring Pakistan. Some 70-80% of guar in India is grown in Rajasthan.

It was, as if, money was raining from the sky. Guar used to sell at Rs 10 a kilo. At Rs 40, the farmer made a nice profit.  In December last year it touched Rs 70. And in March, this year,  it touched an impossible Rs 300 !!

Farmers who were in debt , or dirt poor, are suddenly seeing untold riches.  They've built a house. They've bought colour TVs. Two wheelers are plentiful - even the odd car is seen. Thousands of farmers have suddenly been lifted out of poverty into, what for them, is a quality of life they could not have even dreamt about. Guar gum is suddenly, back gold. The largest Indian agricultural export last year by far, more than basmati, more than cotton, was guar gum !

Of course, it has all the makings of a stampede. Everybody, man, woman and dog, is trying to grow guar.  Factories have sprouted adding crazy capacity to extract gum from the guar beans. Traders, middlemen and the usual scoundrels have descended to trade on the guar market - there was so much of the Wild Wild West going on that the government has banned the futures market in guar.  There has also been much stockpiling by the energy firms that the next season demand for guar might plummet. Lots of punters will burn their hands.

But for the next few years at least, the trend is inexorable. Shale Gas will be an important source of energy in the future. The largest reserves are in China, another energy guzzling economy. Nobody has yet found a way to extract this gas without guar gum. Nobody has also found a way to grow this economically outside of Rajasthan. So there is much prosperity waiting in store for the agriculturists of Rajasthan. Its a great story - those hardy souls deserve every bit of it. However you could be forgiven for some rather puzzled faces as to how come money is raining from the sky when even water doesn't. And the even more puzzled stare of their cow which is wondering, whatever happened to the guar bean it used to chew contentedly, not so long ago.


Vincy said...

Typical post from you Ramesh - something completly out of the blue.

Truly happy for the farmers. In an era, when all the farmer suicides are so disheartening to hear, this is a welcome break for farmers atleast in Rajasthan.

This reminds me of the fanatical rush for Rubber in Kerala some half a century back. Rubber plantations are doing pretty well, though the international market fluctuations affect the rubber plantation owners once in a while, general trend is kind of upswing.

May the Americans continue fracturing... oops Fracking.. :-)

Asha said...

My comment may sound repetative, but i have no choice. Either you leave me wordless(like in jaw dropping awe) like your chinese politics one or make me repeat my comments.

So this time, i leave a comment through your blog.

To the editors of the major indian dailies-

Catch hold of Ramesh of Business musings to spike up your circulation. He often brings informative news which none of you can match. Get hold of him before any international news office picks him up. And i am serious about this comment.

Thank you for such brilliant informative news. no wonder you are 'The Thalai'

Ramesh said...

@Vincy - Yeah; any which way farmers truly advance is great. Not through subsidies and doles, but through a real advantage in the market place.

Yes rubber too. Actually any crop with a good export potential is doing quite well.

@Asha - OMG. I am blushing and totally red in the face. Thanks very much. Coming from an expert travel writer, I am truly honoured.

sriram khe said...

Frack, baby, frack :)

I didn't know about such an intricate connection to the farmers in Rajasthan. Something new everyday, eh! Thanks for the info, Ramesh.

As I was reading it, I started wondering and worrying whether you were going to end it with something disastrous for the farmers. Thankfully, you didn't :)

But, the nerd in me worried about this angle!

Vincy's note about rubber is one of those classic stories of how an important natural ingredient was quickly substituted with synthetic ones. And soon, the terms of trade shift in unfavorable ways for those who had built up an economy around a natural commodity.

The question then is how much of the guar incomes generated in Rajasthan have gone into multiplying that via an economy that will not be dependent on that commodity.

From your post, and from the additional items I read as a result of your post (you owe me the hour I spent on it!!!) it seems like there is a lot more consumption going on than productive investment. And that too a consumption that takes the money out to other geographic areas.

Am guessing that even as fracking spreads (despite the growing opposition to it here in the US) the industry will come up with technologies that could quickly minimize their reliance on a bean gum from the other side of the planet.

Interesting times we live in. That is for sure.

Thanks for the post--became quite an educational Sunday morning.

gils said...

intha newslaam ungaluk engenthu kedaikuthu!!!

TMM said...

Hmm interesting. There was this Vanilla boom in Kerala and parts adjoining Coimbatore a few years ago (attributed to a drought in Mozambique which is the vanilla capital of the world)That boom went bust. So was the story with prawn culture in coastal Andhra a decade back. Lots of farmers went into Jatropha which is going no where. I hope this gaur story doesn't end up the same way. Already the greenies are waging war against fracking (atleast here in NZ where the gas company tried to frack of the coast in the Tasman sea) Good for the farmers till the boom lasts.

RS said...

Is this the kothu avarai kai by anyway?(I googled and found so, yet clarifying). In that case: Oh, no, the Indian mothers will have to crib about what they truly miss making something in summer :)-salted, dried kothu avarai :(

Ramesh said...

@sriram - Absolutely honoured that this post was interesting enough to induce you to read more on this subject. Yes, it is a boom that will go bust one day - Haliburton even issued an explanation for margin drop based on guar gum prices !! An alternative will be found. However, I think the high prices (not insane prices) will last another 3-4 years at least. And you are right - as is human nature much of this wealth is being frittered away in consumption expenditure. But what the hell, for a group that was always used to misery you can't grudge some indulgence.

@gils - Exactly the same way you know intimate details of Asin's toenail polish colour :):)

@TMM - Yeah this is also like other booms, but likely to be slightly longer standing. Any sudden quick rich boom is dangerous. If only agriculture were corporatised, there would be moves to create sustainable competitive advantage that would lengthen the boom - patents, ensuring prices don't go so high the alternatives become viable, etc etc

You kiwis are a strange lot. Your greens oppose every economic activity. In fact you are one of the greatest polluters of the world - with all the cows and sheep you have got you are enormously increasing methane due to bovine and ovine flatulence ! I am not joking. Arthur C Clark opined that if alines were to examine earth the first way buy which they would guess the presence of life on the planet was by deduction of bovine flatulence :)

Ramesh said...

@RS - Yes it is. Hardly anyone's favourite vegetable, I would think ?? Anyway no chance of getting it, other than some local produce - everybody is making gum out of it and exporting :)

Anonymous said...

Interesting indeed!!! just tweeted your link, have to wait and see how long this boom lasts!! happy for the farmers, hope there is no scam that comes along the way - GaurScam!!!

Ramesh said...

@Shy - Welcome to this blog and thanks for your comment. Ha ha - no Guar scam; this is all fairly above board, although lots of price manipulators have descended on the market.

JK said...

From where did you get this information. Very interesting.

gils said...

yuck..i dnt follow them :)

Ramesh said...

@Gilsu - Ok Ok. Replace Asin with Samantha :):)

Deepa said...

Truly an interesting one! And I have to admit, I did google Gaur Gum after your post, just like Sriram! :P

Hope the farmers make hay while the sun is shining and move on. With the US trying to find an alternative to Gaur Gum and the adage 'too good to be true', its probably their lottery ticket rather than a new found cash crop! Although I would love it if actually brings long term prosperity to one of my favourite places!

gils said...

stl nail polish detail and all..

Ramesh said...

@Deepa - Wow you too. Yes, it is a bit like the lottery ticket, but I am suspecting the lottery may run for atleast 2-3 years. Its up to the farmers to use their prosperity wisely. With freedom, comes responsibility, doesn't it !

@Gilsu - OK I am hereby willing to accept that when you gaze at stars, your gaze does not extend to the feet :):)

Vishal said...

Ramesh - I have to admit that the stories that you bring out here on this space just makes me ashamed of my knowledge.. this was truly one of the best of the best from you.

After all the research, I did find out that this is the same 'guar'-fali that mom uses every now and then at home. I am still not able to accept the fact that this is the same guar :P

Anonymous said...

I have been following this blog only in the last few months and find it very educative and indeed makes me read more on the various topics you are opening my eyes to!
So thank you for giving this opportunity!
This particular post caught my eye as a scientist and thought I needed to write my two cents worth only to show a different perspective on guar. This bean (also called cluster beans or Kothavaranga in tamil)has been known for atleast two decades through a number of scientific studies to contain a carbohydrate (gum) with a unique property that enables the slowing of the digestive process and creating a feeling of fullness in turn delaying the rise in blood glucose and lowering cholesterol.

Given these properties, I wonder why the Americans (with the highest prevalence of obesity and heart disease) have not commercialised this gum enough rather than satisfying their other fuel desires! One more food crop sacrificed for fuel!

Ramesh said...

@Vishal - It is. We all are used to the vegetable, but don't regard it very highly. Just goes to show that even the ordinary can rise to the level of greatness :):)

@Anon - Thanks for coming to this blog and for your comment. Yes this gum's properties as a water binder was known and it is being used widely in the food industry as a thickener - in ice cream, in sauces, etc. As you say, it could be a good dieting option, except that for many it doesn't taste all that good :)

Oh yes - another crop sacrificed for fuel. Indeed, this is a major issue confronting agriculture. With land being a constraint, if any of it is diverted for non food uses, it has a direct impact on the price of food and affects millions of poor people. Always a dilemma. But we can't grudge the prosperity to the farmer that results either.

Reflections said...

This is just too good;-o....I read it open-mouthed...seriously;-D.
I too was about to mention Rubber & vanilla and then realised tht others have already mentioned it;-P
Loved all the comments too...the best ofcourse is Gils "intha newslaam ungaluk engenthu kedaikuthu!!![soo get the puzzlement in his tone]:-D

Reflections said...

And ofcourse a good story to share:-))

Ramesh said...

@Reflections - Gilsu's comment as always is unique.

Picturing you reading this open mouthed :):)

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