Gujarat salt industry hit by US-China trade war

China is the largest importer of Indian salt, 80 percent of which comes from Gujarat. As demand for its finished products is falling, so is that of the raw material used, causing the state's salt manufacturers and farmers losses of more than Rs 100 crore

By Rajnish Mishra

Published: Dec 9, 2019 11:55:40 AM IST

Updated: Dec 9, 2019 03:59:25 PM IST

Image: Malcolm Chapman / Getty Images

Gandhidham (Gujarat): Forty-five-year-old Narubhai Koli, a traditional Agariya (salt farmer) in Gujarat, is confused at the current state of the salt industry.

Koli, a resident of Santalpur village in Patan district, was told by the salt trader, to whom he sells his produce, that there is a slowdown in the market and thus, he won't be able to buy more salt, without further explanation.

Truth is that the trade war between the United States and China has hit the salt industry in Gujarat, the primary salt producing state of India and also the home state of Prime Minister Narendra Modi. China is the largest importer of salt from India; China’s chemical factories, which consume the most salt, have cut down on purchases as demand for their finished products decelerated because of increased US tariffs.

Like Koli, numerous salt farmers have felt the hit of this slowdown, but aren’t aware of how the trade war between two other countries is impacting their livelihoods, says Harinesh Pandya, founder of Agariya Heetrakshak Manch, an NGO which works for the welfare of small salt farmers.

Indian Salt Manufacturers’ Association (ISMA) vice-president Shamji Kangad told Forbes India that salt export to China has halved from normal levels. Kangad is a director at Neelkanth Salt and Supply, a Gujarat-based company that deals with manufacturing and exporting salt.

Of the 30 million tonnes of salt produced in India every year, Gujarat accounts for 80 percent of production. While the annual turnover of Gujarat salt manufacturing industry is roughly Rs 2,000 crore, the border state exports about 10 million tonnes of its annual production to China and Japan, earning about Rs 700 crore. Around 4 million tonnes of salt is exported to China every year for de-icing and industrial purposes.

According to Kangad, demand from China dropped by about 0.5 million tonnes between January and June, and dipped by the same amount in July. August saw a further decline by another 0.2 million tonnes. Gujarat’s salt makers are currently exporting 1.5 to 2 million tonnes of salt to China. The export revenue has reduced to between Rs 100 crore and Rs 150 crore since January.

A study by the United Nations Conference on Trade and Development (UNCTAD) shows that US imports from China subject to tariffs fell to $95 billion between January and June, from $130 billion during the same period in 2018.

“For the rest of the year, we assume another fall of around 0.4 to 0.6 million tonnes in exports to China,” added Kangad who is also the secretary of Kutch Small Scale Salt Manufacturers Association.

Pandya adds that the salt farmers live in the Little Rann of Kutch for eight months of the year, an area which is submerged in the monsoon. “They live in extremely difficult conditions to generate yield. The government has allocated 10 acres to each family to produce 2,000 to 2,500 tonnes of salt annually, to earn about Rs 50,000 per month,” he says.

“Now, they are struggling with excess stock. They already live in miserable conditions. This trade war is likely to have a great impact on them,” he added.

Rain check
BC Raval, president of the ISMA—which is a 70-year-old body of salt makers comprising big names such as Tata, Birla and Nirma—said that China uses Indian salt to primarily make caustic soda, soda ash and glass, along with detergent and textiles. Some other industries that need it as a raw material are case-hardened steel, rubber, brass, paper, plastic and polyester.

Huge mounds of salt are visible in the open at production sites in coastal parts of the Kutch district and adjoining areas. However, despite the bleak export scenario with China, the unusually heavy rain in Kutch region has played a saviour of sorts.

The heavy September rains in the otherwise dry Kutch region has washed away a substantial portion of the salt stocks kept in the open. This has not only improved the quality of the salt by washing away impurities like magnesium, but also balanced the stock.

Laxman Tejabhai Ahir, the owner of the TM Ahir Salt Works in Moti Chirai village in the Kutch district, said that Kutch received about 25 percent of the average rainfall last year, compared to the current year’s 160 percent. As there was limited rainfall last year, much of the stock was not washed away. As exports to China declined, the stock increased during July and August, he added.

However, due to the extended monsoon, the normal production period is also likely to be delayed by a month or two, starting in December or January instead of November, giving manufacturers some buffer time to adjust for the extra stock.

“The rains have made the salt purer, and thus, costlier,” adds Abhishek Parekh, executive director of Ankur Chemfood, a major processor and packager of salt in Kutch. “The rain reduces magnesium content in the salt by four to five times, and save the client purification costs. That’s why this set will command a premium.”

The next steps
Every year, about seven million tonnes of salt are used for domestic purposes, and another seven million by Indian industries, mainly caustic soda manufacturers.

Crude oil rates increased up to $66 per barrel and caused a subsequent rise of $5 to $6 in the freight per ton for shipment from the Kandla port in Gujarat to China, due to which the exports also became non-viable. Kangda predicts that if the US-China trade war continues, crude prices could go up to $70 a barrel, which would be a big problem for the salt industry.

Production next year is expected to be around 30 percent lower than the normal figure of around 24 million tonnes in the state. Salt exported to China is normally priced at Rs 500 to Rs 800 per ton, while raw or low-quality salt is not exported. Japan takes 90 percent of its total imports in the form of high-grade salt, while China imports 50 percent of high-grade and 50 percent medium-grade salt, which it uses for industrial purposes.

Kangda says that export incentives for salt-manufacturing establishments are crucial. “The salt industry has provided jobs to a large number of people, despite the low-cost product and comparatively smaller turnover,” he says. “Moreover, the lease renewal procedure is tiresome, and should be revised. Firms are given a two-year lease, which prevents them from having long-term export agreements.”

(The author is an Ahmedabad-based freelance writer and a member of 101Reporters.com, a pan-India network of grassroots reporters)