Guar: The New Cash Crop of India

In 2012, the hottest crop in India was one most Indians had never heard of: guar.

Guar gum — derived from the guar bean, grown mainly in the arid districts of Rajasthan — had long been a humble industrial ingredient, used in food processing, textiles, and paper. Then America's shale oil and gas boom discovered it. Guar gum turned out to be a key ingredient in hydraulic fracturing fluid, the slurry pumped underground to crack shale rock. As fracking exploded across Texas and North Dakota, demand for guar gum exploded with it.

The price chart told the story. Guar gum that had sold for around Rs 30 a kilo climbed past Rs 500 a kilo at the peak of the frenzy in early 2012 — a more than tenfold surge. Farmers in Rajasthan who had grown guar as a marginal rain-fed crop suddenly found themselves sitting on green gold. Acreage expanded rapidly as everyone chased the boom.

The futures market felt the mania too. Trading in guar on the NCDEX became so speculative that the exchange suspended guar futures in March 2012 — one of the rare occasions when a commodity exchange simply switched off trading in a contract to stop the frenzy.

But commodity booms built on a single foreign industry's appetite are fragile. By mid-2012, prices were already correcting as fracking companies sought substitutes and demand cooled. Farmers who had expanded at the peak faced the classic bust side of the cycle.

The guar episode was a miniature lesson in globalization's reach: a bean grown in Rajasthan's desert, priced by drilling rigs in Texas, traded by speculators in Mumbai, and suspended by an exchange in the middle of the night. The new cash crop of India turned out to be a bet on American shale — and like all such bets, it paid until it didn't.