The boom-and-bust story of a crop called guar
A little-known plant that has been an ingredient in foods for decades has taken on outsize importance in the fracking world over the past few years – and it has created huge swings in its commodity price and in the fortunes of farmers.
Ever since the 1950s, the guar plant has been the source of the guar gum additive the food industry uses to thicken foods or keep various ingredients smoothly mixed together. It’s in everything from frozen pizza to ice cream, egg white substitutes and baked goods.
“Guar is what we call an emulsifier,” says Calvin Trostle, a professor of agriculture at Texas A&M and a guar expert. “Guar is somewhat like a soybean plant. It has pods up and down the main stem.”
Guar gum is not only a common food additive, but also an important ingredient in the fracking process (the hydraulic fracturing of underground rock to release oil and gas deposits).
Crop specialist Calvin Trostle, Texas A&M University, adjust branches on a guar plant that contain maturing seed pods.
In the last 40 years, multiple companies including Halliburton, Baker Hughes, FTS International and others have tried to create a synthetic substitute for guar gum, but they’ve failed to develop anything as effective for hydraulic fracturing, according to Trostle.
With guar gum as its only option, the industry has demanded more and more of the stuff.
“The demand for guar exploded, literally mulitiplied by five, ten times, caught the suppliers’ side by surprise, and basically created a drastic shortage,” says Dennis Seisun, a guar market analyst and the publisher of The Quarterly Review of Food Hydrocolloids. (Hydrocolloids are substances that form a gel when mixed with water.)
As fracking and the demand for guar boomed, so did the price of the commodity, 98 percent of which comes from India and Pakistan. A couple of years ago, the price peaked at about 35 times what the cost of the plant product was just a few years earlier.
Seisun, who regularly visits India and the region where guar is produced, says that’s been an economic boon for farmers there. There is now a futures market set up for guar, and farmers are able to hold back part of their crop yield to wait for a better price.
Some farmers in the U.S. wanted to get into the guar business, too.
“Last year, it was kind of like a revolution,” says Curtis Erickson, a north Texas farmer who was one of many spurred to plant guar because of its exploding price. “We knew we could plant it and farm it and make money at the end of the day. And we were very excited.”
Texas farmers grew about $20 million worth of the plant, based on what a Texas-based raw guar processor had contracted to pay them. The processor was the only one in the U.S. that could handle raw guar.
But as demand soared, India and Pakistan guar suppliers managed to catch up with increased supply. And oil companies, which were paying high prices, stopped hoarding guar.
The price plummeted.
The Texas-based guar processor, which had promised the farmers a set price for their guar, could not pay. And the farmers are now stuck with a crop they can’t reclaim, and which they couldn’t sell anywhere else in the U.S. even if it was returned to them.
“There’s a lot of farmers that I’m aware of that borrowed money last year to farm the guar on,” Erickson says “And since they didn’t get paid back, they in turn couldn’t pay their banks back.”
“And then the bank will come looking to collect somehow,” Erickson says.
The farmers have taken their case to court, and the Texas guar plant is now bankrupt.
While the price of guar has declined, it’s still about three times higher than it used to be. But since the U.S. historically has had little to no supply chain for processing raw guar, Seisun says India and Pakistan will remain the major suppliers.
“Competing with costs of production in low-cost areas like India and Pakistan have always presented a problem. And I don’t see that source of supply is going to be very different in the near future,” Seisun says.
Meanwhile a few Texas farmers, including Erickson, have planted a small quantity of guar again this year. Erickson says he wants to be ready, in case the guar market in the U.S. bounces back.
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