From Food to Fracking: Guar Gum and International Regulation

Font Size:

Indian guar gum regulation may impact fracking.

Font Size:

A small bean grown in the Indian subcontinent has become a prized international commodity since the rise of American hydraulic fracturing (fracking). Guar gum plays a crucial role in the fracking process. Its dispersibility in water and mineral oil assists in pushing fracking fluid through solid rock to reach petrochemical deposits in the earth’s crust.

India, the main producer of guar gum, has faced crippling food inflation over the past two years. In March 2012, as the jurisdictional regulator of the guar gum market, the Forward Markets Commission (FMC) of India decided to close out all physical contracts of guar gum for the season. They also disallowed any new positions in the guar gum trading market effective March 21, 2012 and hiked margins on participants going long on the guar gum market. Their stated reason was that prices had quadrupled in the period between December 1, 2011 and March 27, 2012. Commodity prices fell sharply after the FMC announcement, with guar seed prices decreasing over 7% and guar gum prices nearly decreasing by 6%.

Soon afterward, the FMC released a report accusing 4,490 different business entities of accumulating over Rs. 1,291 crore (approximately $235 million) from manipulating the commodities markets. While guar gum is also used for food products, Indian observers found that oil companies consistently outbid agricultural and comestible producers for guar bean and guar gum products, disproportionately contributing to food inflation.

The FMC has utilized the time of the moratorium to refine its regulations of guar gum trading markets. They announced in June 2011 their desire to re-list guar gum on exchanges after July, when a new crop of seeds will have been sown. India’s only publicly traded guar gum company, Vikas WSP, recently saw its stock price surge upon news that the FMC was moving closer to re-opening futures trading on guar gum within the next month. With this potential announcement affecting 80% of world supply of the crucial fracking fluid, American petrochemical companies and farmers are anxiously awaiting India’s next regulatory salvo in the guar gum market.