CLUSTER DEVELOPMENT PROGRAMME, INDIA

DIAGNOSTIC STUDY
SME
THE SAGO & STARCH INDUSTRY CLUSTER
SALEM (TAMIL NADU)

BY
[Link]
Project Co-ordinator,PROJECT UPTECH
STATE BANK OF INDIA, SALEM

DEVELOPED UNDER
THE CLUSTER DEVELOPMENT AGENT TRAINING PROGRAMME,
ORGANISED BY UNIDO CDP, NEW DELHI

&

THE ENTREPRENEURSHIP DEVELOPMENT INSTITUTE OF INDIA

(EDII), AHMEDABAD

YEAR 2001
The views expressed in the Diagnostic Studies are those of the
authors and should not be attributed to UNIDO or to the
institutions they may represent.
 SALEM SAGO & STARCH CLUSTER

CONTENTS
NO. TOPIC PAGE
1 INTRODUCTION 1
1.1 The Global Scenario
1.2 The National Productivity
1.3 Uses Of Tapioca

2 THE SALEM CLUSTER 5

2.1 About The Region
2.2 The Growth Of Sago & Starch Industry At Salem
2.3 The Role Of Sagoserve

3 THE PRODUCTION DETAILS 7

3.1 Sketch Of Smes In The Cluster
3.2 Products & Their Markets
3.3 Proces Flow Chart
3.4 Product Diversification
3.5 Export Status

4 ANALYSIS OF BUSINESS OPERATIONS 14

4.1 Markets
4.2 Raw Material Supply
4.3 Production Technology & Procesing
4.4 Premises
4.5 Finance
4.6 Infrastructure, Polices Regulations

5 OTHER SUPPORT INSTITUTIONS 21

5.1 Industry Associations
5.2 Other Institutions
5.3 The Cluster Linkages
 SALEM SAGO & STARCH CLUSTER

6 PROBLEMS IDENTIFIED 26

7 SWOT ANALYSIS 27
• Strengths
• Weaknesses
• Opportunities
• Threats

8 VISION STATEMENT 29

9 ANNEXURES 30
 SALEM SAGO & STARCH CLUSTER

1. INTRODUCTION

1.1 THE GLOBAL SCENARIO

Tapioca Cassava (Manihot Esculenta Crantz) was introduced in India during the later part of the 17th
century by the Portuguese living in the state of Kerala. India’s share is about 6 per cent in the total world
production of tapioca. The other important tapioca producing countries are Brazil, Nigeria, Zaire,
Thailand and Indonesia. Tapioca is a tuber crop of huge economic importance as it is used not only for
human and animal food consumption but also as a raw material for various industrial products. Each day
about 500 million people consume tapioca world over and derive 300 kilo calories of energy (Edison,
1999).

Globally cassava is grown in about 95 countries with major contributions coming from Africa (57%)
followed by Asia (25%). The wide agro-ecological adaptability of cassava coupled with its ability to
withstand biotic and non-biotic stresses have made it a crop of primary importance for the weaker
sections of the society, especially in the developing countrie s of Africa, America and Asia.

Tapioca is one of the most important subsistence food and industrial crop for the developing countries.
Globally, about 158 million tons of tapioca is produced from an area of 15.7 million hectares with an
average productivity of 10 tons/ha. As mentioned earlier, among the tapioca producing continents in the
world, Asia ranks next only to Africa with an area and production of 3.97 million hectares and 51.44
million tons respectively (anon., 1993).

1.2 THE NATIONAL PRODUCTIVITY

In India, tapioca is grown in an area of 3.1 lac hectares with an annual production of 60 lac tons.
Although cassava is cultivated in about 13 states of India, the major production comes form the southern
states of India i.e. Kerala, Tamil Nadu and Andhra Pradesh. In the view of the changing lifestyle, influx
of gulf money, availability of grains through public distribution system and a shift in cultivation pattern
favouring plantation crops, the areas in Tamil Nadu and Andhra Pradesh showed a gradual increase in
cassava production over the years.

While the total production of Kerala came down to 2.58 million tons in 1996-97 from 4.2 million tons in
1967-68, the same rose to 3.04 million tone from 0.42 million tons during the corresponding periods in
Tamil Nadu. This remarkable increase in production in Tamil Nadu was the result of adopting high
yielding cultivators like H 226 and H 165. A survey conducted by CTCRI has indicated that more than
three fourth of the cassava area in Salem, South Arcot and Dharmapuri districts was under these variety of
seeds.
1
 SALEM SAGO & STARCH CLUSTER

The huge shift in the focus of cassava production from Kerala to Tamil Nadu is clearly evident from the
following table:

CASSAVA PRODUCTION KERALA TAMIL NADU

1967-68
a. Area under cultivation 86% 13%
b. Percentage of national 91% 9%
production

1996-97
a. Area under cultivation 61% 29%
b. Percentage of national 45% 52%
production

Tapioca is cultivated predominantly in Kerala as a staple food crop while it is more of an industrial crop
in Tamil Nadu. Tapioca root is valued for its starch content and mainly used by sago industries. The
tapioca root contains 30 to 40 per cent of dry matters, which is principally carbohydrate. It has acceptable
levels of B vitamins and provides other minerals too. In Tamil Nadu, tapioca is being grown in an area of
85,412 ha accounting for an annual production of 32.22 lac tons. Around 80 per cent of the total tapioca
production is utilised by the sago and starch based industries in the state (According to Thamburaj and
Kannan, 1997; Vikas Singhal, 1999).

Based on the statistical projection, the production of cassava is expected to reach 6.08, 6.76 and 7.44
million tons respectively by 2000, 2010 and 2020. But considering the population growth rate, the
country should aim to produce cassava tubes to the tune of 12 million tons by the year 2020, which would
call for extensive R&D strategies in the field. The present productivity of 22.5 t/ha is projected to rise to
26.95, 32.57 and 38.20 t/ha by 2000, 2010 and 2020 respectively.

1.3 USES OF TAPIOCA

• Tapioca as a food security
Tapioca can serve as a nucleus for many industries with the application of biotechnology, especially
in the fermentation industries (Balagopalan et al., 1992). On the other hand, tapioca has emerged as a
cash crop in Tamil Nadu, Andhra Pradesh and Maharashtra.

2
 SALEM SAGO & STARCH CLUSTER

The crop fulfills the need of the massive starch and sago industries in these states. In order to
maintain the supply of food materials and to keep pace with the ever-increasing population, tapioca
has to be retained well within the cropping system of marginal farmers.

• Tapioca based agro industries

Globally 58 percent of tapioca produced is used as human food, 28 per cent as animal feed, 4 percent
in alcohol and starch based industries and only 10 per cent is spoiled (Mandal, 1993). While more
than one fourth of the total tubers produced (158 million tons) in the world is in Asia, India accounts
for only 6.5 per cent and Indonesia and Thailand account for about 10 per cent (Anon, 1993).
Thailand and Indonesia export tapioca chips and pellets to other countries. The pellets are used as
animal feed in western countries. In India, particularly Tamil Nadu and Kerala have the potential of
increasing the productivity further and compete in the export of chips and pellets in the international
market.

Tapioca can be used as a raw material for a number of value added industrial products such as starch,
sago, glucose, dextrin, gums and fructose syrup. Most of the items mentioned are industrial products
which can be categorised as “growth industries”. The industrial tapioca starch finds its application in
various fields. The major consumers are cotton and jute textile, and paper and hard board industries.

Liquid glucose and dextrose are widely used in food and pharmaceutical industries. Both these sectors
are in a rapidly growing stage. The Government of India has included liquid glucose and dextrose in
the list of items where there is likely to be a sustained demand and scope for investment. Since there
is substantial growth in the food and pharmaceutical industries, naturally the demand for liquid
glucose and dextrose is bound to go up in future. As tapioca starch possesses the advantageous
physio-chemical and structural properties it can be easily converted to liquid glucose and dextrose.
Many factories have been established recently with this objective.

• Cassava-chips and flour

White chips are used for the preparation of cassava flour, which is consumed in the same manner as
rice flour. It also forms a major component in many animal feeds. In industry it serves as a raw
material for manufacturing starch, dextrin, glucose and ethyl.

Very fine cassava chips or crisps are deep fried in edible oil, packed in polythene bags and sold as
snack food commercially in various parts of Kerala, Tamil Nadu and Andhra Pradesh. Gold fingers,
wafers, sago pappads and tapioca pappads are some of the other snack food items produced in home
and cottage industries and are available in the market for sale.

• Sago
Sago (sabot-dana or pearls) is used as a snack food in preparation of porridge. It is also popular as an
infant food. About 35 industries from Andhra Pradesh and many from Tamil Nadu are engaged in
manufacturing sago from cassava tubers. 3
 SALEM SAGO & STARCH CLUSTER

• Starch
Cassava finds a major industrial utilisation in the production of starch. Starch and sago are produced
from cassava tubers in more than 900 small and medium scale factories and at least two large-scale
industries in Tamil Nadu. In Andhra Pradesh one large scale and about 35 small-scale industries
process cassava tubers for starch and sago production.

The cassava starch is used in paper industries (at beater stage, as calendar sizing, for paper coating, as
wet and additive), Textile industries (as wrap sizing agent, in fabric finishing), Food industries and
Adhesives. Gum and laundry starch is produced in cottage industry near Trivandram for marketing
and sales on a regular basis.

• Modified Starches
Two firms in Tamil Nadu namely, M/s SPAC Tapioca Products (India) Ltd and M/s Varalakshmi
Starch industries Ltd, Salem are engaged in manufacturing, marketing and sales of cassava starch
derivatives such as corrugated gum starch, carboxyl methyl starch, acid modified starch, cationic
starch and pregelatinised starch.

Another firm in Andhra Pradesh, M/s Vensa Biotek Ltd of Samalkot is expected to commence
production of cold-water soluble cassava starch using CTCRI technology. And a firm in Kerala
named M/s National Chemicals and Adhesives of Quilon manufactures and markets carboxyl methyl
starch using cassava starch as animal feed material. This firm is also involved in large-scale
manufacture and marketing of Dextrin, which is derived from cassava starch.

• Dextrin
A good number of small-scale industries are engaged in producing dextrin from cassava starch, which
is relatively a simple process.

• Sweeteners
Liquid Glucose is being manufactured by M/s. Vensa Biotek Ltd., Samalkot, AP from cassava starch
and/or flour. M/s. Varalakshmi Starch Industries Ltd., Salem, TN reportedly manufactures malto-
dextrin and monosodium glutamate from cassava starch. M/s. jayant Vitamins, Vadodara, Gujarat had
ventured in producing sorbitol as a sweetener and a precursor to manufacturing of Vitamin C.

• Ethanol
The CTCRI technology for the process of manufacturing ethyl alcohol using cassava chips, flour or
starch has been procured by M/s. Superstar Distilleries, Kochi, Kerala and M/s. Vairam Agro Fuels,
Chennai. The former licensee had commenced commercial production and limited marketing.

4
 SALEM SAGO & STARCH CLUSTER

• Starch-based biodegradable plastics

The CTCRI technology for manufacturing of starch-based biodegradable plastics has been licensed to
4 parties in the states of Delhi, Haryana, Himachal Pradesh and Karnataka. M/s. Shivalik Agro Poly
Products, Parwanoo, HP has already commenced commercial production. The unit at Bangalore,
Karnataka is expected to commence production shortly using cassava starch.

2. THE SALEM CLUSTER

2.1 ABOUT THE REGION
Salem has traditionally been known as the land of sago and starch. The industry got a fillip during the
Second World War when imports from the far-east were rendered impossible. The Salem region offers a
good raw material base, cheap labour and good sunshine throughout the year. All these factors provide a
congenial environment for growth of tapioca based products and have made this place famous for the
same even at an international level.

The productivity of tapioca is about 25-30 t/ha in this area, which is known to be the highest in the world.
The national average is 19 t/ha while the world average production stands at 10 t/ha only.

2.2 THE GROWTH OF SAGO AND STARCH INDUSTRIES IN SALEM

In the year 1943, Mr. Manickam Chettiar an adventurous entrepreneur went to Kerala and found tapioca
flour to be a good substitute for American corn flour. He tried various ways and means to improve the
production and marketing of this flour. To meet the growing demand of sago and starch, Mr. Manickam
with the help of a genius mechanic Mr. Venkatachalam Gounder, improved the method and machineries
for production. In their efforts, they were able to increase the production of Sago flour from 20 to 25 bags
per day.

The sago and tapioca starch industry was born during the Second World war but the end of war posed a
threat to its existence because of the changes in the import policies. As a result of the successful
representations made by the sago and starch manufacturers, and at the instance of the then Governor
General of India, Thiru. C. Rajagopalachari, the Indian Government imposed a ban on import of starch.
The industry heaved a sigh of relief temporarily before they were made to confront with the import of
maize starch under P.L.480, which again came to an end in 1965.

5
 SALEM SAGO & STARCH CLUSTER

The sago industry in the Salem district and the adjoining areas has witnessed a phenomenal growth in the
last 60 years, as shown below:

Year No of Units Production (in tons)

1945 7
1949 45 7000
1957 125 23000
1960 200 50000
1970 650 1.5 lac tons

As on date there are more than 750 sago and starch units in Salem, Namakkal, Dharampuri and Erode
districts, registering an awesome growth! It is but appropriate to name this grand growth as the “Sago
Revolution”.

2.3 THE ROLE OF 'SAGOSERVE' IN THE CLUSTER'S GROWTH

Prior to the formation of SAGOSERVE, an industrial cooperative service society, the manufacturers of
starch and sago in this district faced a lot of problems such as lack of financial assistance, warehousing
and marketing facilities for tapioca products. The merchants used to offer low prices for their goods and
exploited the manufacturers due to an absence of organised marketing and warehousing facilities.

To overcome these problems, the sago/starch manufacturers in 1981 formed the Salem Starch and Sago
Manufacturers Service Industrial Co-operative Society Ltd., popularly known as the SAGOSERVE under
the Tamil Nadu Co-operative Societies Act 1961. This society is functioning under the administrative
control of the Director of Industries and Commerce, Government of Tamil Nadu.

After the emergence of SAGOSERVE, the bargaining power of manufacturers has substantially increased
and the menace of middlemen in this trade has been completely eliminated. Owing to the sustained efforts
of the society, sago/starch industry has now become the backbone of Salem district’s rural economy,
providing employment to more than 5 lac people both in agriculture as well as factories.

6
 SALEM SAGO & STARCH CLUSTER

3. THE PRODUCTION DETAILS

3.1 SKETCH OF THE SMES IN THE CLUSTER

There are about 800 sago and starch units situated throughout Tamil Nadu. Though the sago industry is
spread over Salem, Namakkal, Dharmapui, Erode, Tiruchirappalli and Perambalur districts, the Salem and
Namakkal districts are known to have the highest concentration of sago units. While most of the centres
are known for simple Sago production, some of the units at Salem also produce 'Nylon Sago', a special
product which is made by subjecting the sago balls to steam cooking.

The sago factory owners at Attur and Harur area predominately produce starch in their factories. While
most of the sago units are producing sago from tapioca starch produced at their factories, a new trend has
emerged wherein wet starch is being purchased from factories that are only producing starch and then
sago is being produced from the wet starch thus purchased.

Sago widely referred to as ‘Sabut-dana’ in Hindi is consumed as a food item especially during religious
functions in the states of Maharashtra, Gujarat, Madhya Pradesh, Orissa and West Bengal. Earlier for
making sago, the outer skin of the tapioca tubers was completely peeled and crushed to produce starch
milk. This operation involved large amount of labour and resulted in loss of starch along with the peels. It
was also time consuming and expensive. No chemical was used in this type of processing. However the
resultant quality of the sago used to be wholesome and tastier. In this process the smaller tubers, which
could not be peeled had to be rejected, only to be used for making starch later.

But now due to the innovations made in the industry by the introduction of shaking machines and devices
like rotating peelers etc, the sago producers have started processing the sago tubers without the manual
peeling operation. But the machine peeling was not proving to be as efficient as that by hand and the
resultant starch used to contain impurities like portions of outer skin. To remove these impurities and to
improve the colour of sago, chemicals like bleaching liquid and sulphuric acid were started being used. In
this case the resultant product is less tasty than that by the earlier procedure.

At present there appears to be some consumer resistance in the Northern states for the products with
excessive chemical odour and inconsistent cooking quality. Therefore many sago factory owners are
resorting to the old practic e of hand peeling. In order to ensure a better quality in the products, the
SAGOSERVE has established a laboratory at its premises to test all the samples of consignments of
starch and sago brought for sale. And only the samples, which pass through the test are allowed to
participate in the auction process. The turnover statistics of SAGOSERVE is shown below: 1

1
Please refer to Annexure 1 for the functional details on SAGOSERVE 7
 SALEM SAGO & STARCH CLUSTER

SAGOSERVE, SALEM TURNOVER FOR 1982-83

TO 1999-2000 TURNOVER RS. IN LAKHS

25000

20000
Y-Axis Rs. IN LAKHS

15000

10000

5000

0
19 83

19 84

19 85

19 86

19 87

19 88

19 89

19 90

19 91

19 92

19 93

19 94

19 95

19 96

19 97

19 98

19 99

0
-0
-

-
82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99
19

YEAR

3.2 PRODUCTS AND THEIR MARKETS

The main products of industry are Sabut-dana and starch. The different types of Sago are given below:

• Grades of Sago
o Super Fine
o Milk white
o Special
o Best

The other types of sago produced by some of the units in the cluster are Nylon Sago and Sago Brokens.

• Grades of Starch
o Textile Grade
o Edible Grade
o Glucose and Laundry Grade

8
 SALEM SAGO & STARCH CLUSTER

10% of the sago produced is being marketed directly to the producers and the wholesale dealers in other
states. This procedure is undertaken by obtaining E&F form and is somewhat complicated. Another 10%
to 20% of the sago is being marketed through local traders in Salem. This procedure is followed by
obtaining the form C. A major portion of the sago production i.e. 70% to 80% is being marketed through
SAGOSERVE. Marketing through this society does not require filling of form C and is much more
advantageous than direct selling, which is why most of the sago producers prefer to go by this channel.

The main markets for sago are Northern States, like Maharashtra, Gujarat, Madhya Pradesh, Orissa,
Andhra Pradesh and West Bengal.

Starch also is marketed through SAGOSERVE as well as through Salem traders directly. The
manufacturers undertake the following measures to improve the grade of the sago/starch.

1. Washing the tubers thoroughly with jet washing.

2. Peeling of outer skin with help of shaking machines with peeling devices and rotary peelers.
3. Hand peeling.
4. Use of chemicals like bleaching liquid and sulphuric acid to remove unwanted materials and to
improve the colour.
5. Use of agitators instead of manual walking process in the starch setting tanks.
6. Proper roasting of the product.
7. Keeping a high level of hygiene in the factory.

3.3 PROCESS FLOW CHARTS

The flow charts depicting the various stages involved in the production of Sago and Starch are
given below.

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 SALEM SAGO & STARCH CLUSTER

3.3.1 MANUFACTURE OF SAGO

Sago (globular shaped one) is one of the important products made from tapioca starch commonly
used in the dietary preparation. The unit operations for sago manufacture are given below.

Starch from settling tanks (moisture content @ 40%)

Pulverization

Globulation

Sieving Smaller and over

size products

Coconut oil Roasting Heat

Drying

Polishing

Broken Sago Sieving

Sago

Bagging

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 SALEM SAGO & STARCH CLUSTER

3.3.2 PRODUCTION OF STARCH

The process flow chart for the production of starch from cassava is given in Fig.1. below.

Cassava Tubers

Water Washing Waste water with

soil and dust

Peeling Peel

Water Washing Waste water

Water Rasping

Screening Residual pulp

Setting of starch Effluent

Disintegration

Drying

Pulverizing

Sifting

Bagging
11
 SALEM SAGO & STARCH CLUSTER

3.4 PRODUCT DIVERSIFICATION

Cassava as such provides an ample scope of diversification and value addition. There lies a vast
opportunity for non-traditional uses of cassava in the form of value-added food, animal feed formulation,
sago and production of commodity chemicals like citric, high fructose syrup etc. It can exploit its
opportunities in the area of convenience food for which greater demands are projected in future.

Trade sources indicate that there is a great demand for chips (almost one lac ton per month) in the export
markets, which of course has competition from South-east Asian countries. The by-product of starch
factories, thippi and of cassava flour milling, bharda can be used as a cost effective ingredient in animal
feed formulations. Also the simplicity of sago and starch extraction puts cassava in a one-upmanship
position than other sources. This could be exploited for setting up units in non-traditional areas.

Nevertheless cassava faces stiff competition from other sources of starch in price as well as in the
preference for processed products. Starch and sago are the major processed products of cassava
manufactured mainly from 1000 small-scale factories of Tamil Nadu and Andhra Pradesh. There are nine
large-scale starch factories mainly using maize and sorghum, and very rarely fresh and dried cassava. The
major reason for preference towards maize and sorghum is the relative advantage in price of these crops
over cassava. Dried cassava chips are 60-70% and 70-90% costlier than sorghum and maize respectively.
The applications of starch include textile sizing and finishing, foodstuffs, adhesives, starches and
sweeteners. Although cassava starch has specific advantages especially in hard printing of textiles,
adhesives etc., maize starch is mostly preferred for other applications.

However, it was observed that thippi, a by-product of cassava factories is used as a filler in the poultry
feed formula tions. Dried cassava chips may be used as a source of energy in compound feeds but most of
the feed companies are reluctant to include cassava chips as an ingredient due to the cost factor. It is a
matter of pride that two modern factories following Thaila nd model have come up on each in Dharmapuri
and Erode districts of Tamil Nadu. These factories are trendsetters for quality improvements of cassava
products.

3.5 EXPORT STATUS

Trade of cassava in the international market is either in its raw form of in its processed form. India has
been exporting cassava products since 1950’s in different forms viz. raw tubers, frozen tapioca, tapioca
chips, manioc starch, tapioca & substitutes, tapioca flour, sago pith and sago flour. The Indian cassava
exports declined after 1960’s due to domestic food situation especially in Kerala. However in late eighties
exports picked up momentum.

The bulky and perishable nature of cassava offers little scope in the export trade of raw tubers. However,
there is an active international trading in chips and pellets and to some extent starch and sago.
12
 SALEM SAGO & STARCH CLUSTER

Between 1956 and 1964, India was exporting cassava products (70000 tons of dried chips) mainly to
European countries. But it went out of export trade gradually after-82 due to quota restriction imposed by
EC and in view of the emerging export giant of cassava, Thailand, whose 90% of the total cassava
production is exported to EC. In spite of the fact that the cost of the production of raw tubers in Thailand
did not have much advantage over India, the former could forge ahead in export due to low processing
costs, good export handling facilities and free trade environment.

Presently, India is exporting very small quantities of cassava raw tubers to the Middle East countries. It is
exported in two forms i.e. frozen tapioca and cassava raw tubers. These exports are routed through the
Cochin sea port and from Kozhikode and Trivandrum airports. As per the published data, raw tubers
exports started only recently. Dried cassava chips were exported mainly to European countries like
Netherlands, Belgium, Italy and USSR. Even though the published data shows that cassava chips were
exported between 1972–73 and 1985–86, trade enquiries in Andhra Pradesh revealed that even in 1987–
88, 92–94 and 95-96, dried chips were being exported to European countries from Kakinada port. An
annual export growth rate of 1.45 per cent was observed for dried cassava chips between 1972-73 and
1985-86. Trade enquiries indicated that a high percentage of sand and silica in the chips is the general
problem in the quality of chips exported from India.

Cassava chips offer a great scope for export provided more efforts are made to improve the product
quality. Tapioca flour, which is mainly exported to the European countries, has been increasing at the rate
of 1.17 per cent per annum during 1970-97.

Manioc starch exports started only recently from India i.e., from 1992-93 onwards. It is exported to
European and South East Asian countries. The major problem in starch exports is inconsistency in the
product quality. It is exported from Chennai, Mumbai and Calcutta ports. During 1997-98, India exported
3385.47 tons of starch valuing Rs2.89 crores.

Under the group tapioca substitute, various value added products prepared from tapioca starch in the form
of flakes, grains, pearls, siftings in smaller forms are exported. This group has a major share among the
cassava exports from India. During the last two decades quantity exported ranged between 2.4 tons to
35232.55 tons. These products are routed through Chennai, Mumbai and Calcutta ports.

Although there are no reports of sago & starch production derived from Sago palm in India but the
published data shows that products under sago pith and sago flour are being exported from here. Sago pith
exports have shown significant growth of 2.02 per cent per annum during 1980-97. It is exported mainly
to Bangladesh, Middle East countries from Mumbai and Calcutta ports. These exports have shown an
average growth of 1.75 per cent per annum since 1970.

13
 SALEM SAGO & STARCH CLUSTER

4. ANALYSIS OF BUSINESS OPERATIONS

4.1 MARKETS
The traders of sago usually have to make payment through immediate cash or within a reasonable period
to the sago factory owners. However, in their turn they have to sell the produce to the wholesale dealers at
credit. Non-realisation of money in time poses a major problem for these traders.

Most of the traders are dealing in low end products like special and best and only a few of them deal in
super fine and milk while sago grades. These traders concentrate on quality and usually test every sample
of the produce. They sell the produce to other states under their brand name and try to build a brand
loyalty among the customers. Because of their focus on consistent quality, the wholesale dealers are ready
to pay a better price for their products and try to settle the payment dues as fast as possible. One such
trader even maintains a computerised record of the quality of all the consignments and is confident that he
can deal with any dispute regarding the quality of any consignment supplied to any wholesale dealers.
This also enables him to trace the producers who supply inferior quality of sago. Another wholesale
dealer makes a lot of efforts to market his brand through advertisement and by conducting Sago food
festivals at important market centres. Through his initiatives, he has made a good reputation in the
northern states.

As the competition for the low end products is high, the traders are not able to concentrate on quality and
also the payment for their products often gets defaulted or is either not received in full or in time. Most of
the time, disputes between the trader and the wholesale dealer is settled at the cost of the trader. The
reason for the fluctuating cost is often attributed to the supply and demand position of the sago. However
this aspect requires close scrutiny and detailed market surveys.

The major problem faced by the owners of sago units is the highly fluctuating prices of sago and starch
and sometimes even the mismatching of the purchase price of the tubers. Some owners of sago units feel
that as the traders have to analyse large number of samples within short time at SAGOSERVE and as a
result a proper classification on the grade of sago/starch is not being done. This, according to them gets
them a lesser price for their product than they deserve. Some manufacturers also feel that despite their
undertaking of hand peeling operations, their product does not get an adequate price to compensate the
additional expenses they have incurred or the quality they maintain.

The traders also have association of their own but the association is not very active and rarely arranges
organises a meeting of the members. Also the lack of awareness amongst the factory owners about the
quality standards affects the market. 14
 SALEM SAGO & STARCH CLUSTER

4.2 RAW MATERIAL SUPPLY

Among the different tropical roots and tuber crops grown in India tapioca is one of the most significant
ones, as it can produce more calories per unit. Its importance in tropical agriculture is due to its drought
tolerance and wide flexibility to adverse soil, nutrients, and management conditions including the time of
harvest. Tapioca can be profitably cultivated throughout the year with irrigation.

Tapioca is grown in almost all the districts of Tamil Nadu, the major ones being Salem, Namakkal,
Dharmapuri, Vilupuram, and Kanyakumari. Tapioca grown in Kanyakumari district is mostly used for
culinary purposes. The area under tapioca is said to be expanding to Erode, Karur and Dindigul districts
as well.

The tapioca tuber is available in the industry from July to April but the maximum amount of raw material
is available only during the November to February period during which the starch content of the tubers is
at its peak. Winter appears to be helpful for the consolidation of starch in the tubers. Maximum crushing
activity is being undertaken during this period only. Availability of raw material starts from June end
onwards as mentioned below.

Tuber from Available during

Kolli Hills, Patchamalai June, July, August.

Karamundurai Hills August, September

Panruti Area September, October, November,

December
Salem, Namakkal Nov., Dec., January, February,
March.
Harur, Dharmapuri Dec. Jan. February.

Erode July to February

Brokers play a major role in supplying the raw materials for the sago and starch units. They have a wide
network of sub brokers who help in fetching the tubers even from the far-off places and ensure a
continuous supply of tubers to the sago and starch units. 90% of the raw materials sold from the farmers
are being routed through the brokers only. Mostly the main brokers are situated at Attur, Salem,
Namagiripet, Chellappampatti and a few other areas.
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 SALEM SAGO & STARCH CLUSTER

The main brokers get their produce through sub brokers. In hilly areas the sub brokers operate through
village brokers. The main brokers usually get a commission of Rs.2.50 per bag. The sub brokers earn their
living by negotiating both ways.

While the transactions between the main broker and the farmers are made in cash, those between the
broker and sago units are made in credit basis. The sago factory owners believe that the brokers exploit
both the farmers and the sago factory owners cleverly by manipulating the needs of the both. However the
brokers claim that their income is dwindling because of intense competition. Some farmers directly deal
with main brokers also.

Main Brokers
Attur is a major market for tapioca tuber, which has the maximum number of main brokers i.e. 23, most
of whom have offices of their own and another 15 who operate without offices. Kattukottai, a place near
Attur has 26 offices and Salem has two offices while Chellapampatti and Namagiripettai have two and
one respectively. The brokers also operate in other areas like Thammampatti, Senthamangalam etc.

The biggest broker in Attur deals on an average 5000 lorry loads of tubers in a year. Other brokers deal on
an average of 1000 to 1500 lorry load tubers per year. The farmers resort to sell their tubers through the
brokers for the following reasons.

1- They get advance money from the sub brokers or local brokers.
2- They believe in better bargaining power of the brokers to fetch a good price for their produce, as
the brokers are capable of knowing the current prices of the sago/starch in the market and
negotiate with sago factory owners accordingly and get maximum price for the tubers.

Some factory owners also get tubers directly from the farmers by giving advance money to the farmers
before the start of a season. Such type of transactions which where largely prevalent earlier have
diminished considerably now, as they find it increasingly difficult to get the tubers from the farmers with
whom they have made an advance deal. The farmers are supposed to bear the cost of transport from their
fields to the factories. Most of the farmers prefer that the arrangement of transfer the produce is left to the
broker itself as they believe that the labourers and transport owners can be handled by the brokers more
efficiently than them.

The major problems faced by the owners of the sago units with regards to procurement of raw
material are as below:

• Non-availability of quality raw material of adequate quantity.

• High fluctuation in prices of the raw material.
• Availability of raw material only for a short period.

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 SALEM SAGO & STARCH CLUSTER

The availability of quality raw material that is tubers with rich starch content is restricted to the winter
period that is November to February. The sago factory owners try to purchase maximum amount of raw
material during that period and process it into starch. However only a part of the starch thus produced is
converted into sago, while the rest of it is stored in tanks under water. After the crushing period is over
the stored starch is taken out from the storage periodically and then washed and used for sago making.

During the last season as the prices of sago had fallen below the prices of stored raw material, and as a
result many sago factory owners incurred huge losses. In case during a season the prices of tuber are very
low, the sago factory owners tend to purchase maximum tubers and store it in the tanks underwater. But
due to wide fluctuation in prices now a days the sago factory owners have started adopting a cautious
approach in storing the starch.

The major problems faced by the farmers of the sago units with regards to supply of raw material
are as below:

• The yield of tapioca is getting reduced year by year.

• Diseases like Cassava Mosaic virus, tuber rot, phoma leaf fall are affecting the crop badly.
• Good quality seed material is not available. The existing varie ties of H165, H226, and Mulluvadi
had been released by C.T.C.R.I. and T.N.A.U. long ago and their yield potential have come
down. New varieties like CO2 and CO3 has not spread among most of the farmers.
• The farmers are not aware of the modern methods of cultivation practices, which are cost
effective and environmentally sustainable.
• Depleting soil fertility.
• Depleting water table.
• Monsoon failure requiring drought tolerant varieties and cultural practices to withstand drought.
• Escalating cost of cultivation.
• Fluctuating cost of Tubers. Sometimes the cost of tubers is falls below the level of cultivation
expenses.

Another problem between the farmers and the sago factory owners is the determination of scale for
measuring the starch content in the tubers and fixing the price according to the starch content. The scale is
introduced by the sago factory owners to Tamil Nadu on the model of scale used in Thailand, where the
specific gravity of the tuber is correlated to the content of starch. The same quantity of tuber is first
weighed in air and then immersed in the water and then the difference is shown as percentage of starch
calibrated in the scale itself. The sago factory owners are of a unanimous view that the usage of scale is
the best method for buying the raw material However many farmers are skeptic about it and feel that as it
is not approved by the concerned Government authorities so its usage may give way to manipulation by
the owners of the Sago units.
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 SALEM SAGO & STARCH CLUSTER

Once the problem of applying a scale for the purchase of raw material is settled to mutual satisfaction of
both the farmers and Sago factory owners, it will be a major break through for the industry.

Even while applying the scale there is a variation between the starch content shown as per the scale and
the recovery of actual starch in certain varieties of tubers. For example Mulluvadi variety of Tapioca
though shows a higher starch content as per the scale but the percentage of starch derived is more than the
scaled measure. These variations are to be taken into account while applying scale for the purchase of raw
material.

4.3 PRODUCTION TECHNOLOGY & PROCESING

The sago/starch industry in Tamil Nadu is nearly 60 years old. Though the kind of machinery deployed to
manufacture starch and sago has undergone a tremendous change over the years yet the existing practices
of processing require a lot more alteration in order to become cost effective and to produce quality
products acceptable to the discerning consumers. The sago/starch owners mainly depended on local
mechanics, who are well versed in the layout and erection of sago factories. Many sago factory
equipments are fabricated locally with the help of engineering workshops and laths available nearby. The
necessary spare parts and machines are also available in the neighbouring towns or at Salem itself.

Most of the machinery, which is presently used by a majority of the sago factory owners like tapioca
crusher are not efficient. However some innovative sago factory owners with the help of some machinery
manufacturers at Salem and Erode have introduced several new machines in their factories. The
machinery manufacturers are highly innovative and keep gathering information through different sources
like internet etc. A detail about some new machines that have been introduced recently in the cluster is
given below:

Rasper
'Rasper' is one such innovative machine that replaces the existing root crushing machine. The existing
root crushing machine uses perforated iron sheet to tear and crush tubers in order to release the starch
milk. This equipment needs replacement of iron sheets everyday or two after an average crushing of 400
to 500 bags. However, the new rasper is fitted with imported blades and it even separates the starch from
the tuber than the existing root crusher. This rasper is capable of crushing 20000 to 30000 thousand bags
of tubers without any replacement of blades. At present 4 manufacturers at Salem are manufacturing
raspers and around 30 raspers have already been installed in many factories. Many more persons are
known to be willing to install raspers in their factories.

Tippi Screw
Tippi screw is another such equipment that has been introduced by a machinery manufacturer at Salem.
This equipment separates the leftover starch milk from the tippi. It is gaining acceptance among the sago
factory owners. Two machinery manufactures are manufacturing tippi screw at Salem.
18
 SALEM SAGO & STARCH CLUSTER

Hydro cyclone
Hydro cyclone is another device introduced to the industry by a British NGO, which is effective in saving
water to the extent of 40 to 50%. Many factories that are situated in the water-starved areas can be
immensely benefited by installing of this equipment. At present two persons are manufacturing this
equipment at Salem.

Mechanical un-loader
Mechanical un-loader is an innovative equipment, which is developed on the model of poclain earth
excavator and is slowly finding acceptance among the sago factory owners. It can replace 6 to 8 men
labourers.

Mechanical roaster
Mechanical roaster is being used in one factory to roast sago. This machinery is yet to be popularised
among the sago factory owners. It is found that the process of roasting, which is being used at many sago
units is 12 to 15% inefficient as compared to the efficiency level of this mechanical roaster.

A lot of simple improvements which if implemented will pave way for saving energy and cost. Use of
thermic fluid, butterfly valve in the chimney, use of methane gas etc are some of the suggestions for
improving the roasting made by scientist from National Productivity council at Hyderabad.

Many sago factory owners are showing interest on sago and starch dryer and metallic rotary screens.
Experiments have been carried out by some companies on the above equipments. The cost factor remains
one of the major blocks in introducing new machinery. The sago factory owners are averse to purchase
costly ready to install machinery from the manufacturers and usually fabricate most of the equipments
with the help of local engineering workshops. However the machinery manufactures feel that the sago
factory owners should take into account the cost to run these machinery-manufacturing units.

Problems faced by the sago factory owners with regards to technology

• Getting the skilled mechanics to install the equipments on time is very difficult. Instead the
factory owners have to oblige to the convenience of mechanics. The mechanics are also not
technically highly educated and hence the efficiency of machinery and equipments is below the
expected level.
• The average annual amount spent on repairing and replacement of machinery ranges from
Rs50,000 to Rs1 lac.
• The sago factory owners do not get adequate technical advice for machinery and the equipments
from any formal institutions.
• There is a mistrust prevailing among the sago factory owners and machinery manufactures
hampering the rapid technological advancement of the cluster.
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 SALEM SAGO & STARCH CLUSTER

Problem faced by machinery manufacturers with regards to technology

The sago factory owners often hesitate to offer the price quoted by the machinery manufacturers and are
not considerate to the establishment costs of the latter. They also don’t even pay the entire amount in
lump sum. There is feeling among the machinery manufacturers that the sago factory owners often try to
copy their equipments and neglect them afterwards.

4.4 PREMISES
The sago and starch factories are mainly situated in semi urban and rural areas with an exception of Salem
city wherein around 60 units are situated. Most of the sago factories are housed in large areas ranging
from three to seven acres in rural areas, and one to two acres in urban areas. In the city of Salem paucity
of space restricts the expansion of the factory. The sago factories are usually situated in formal structures.

4.5 FINANCE
Almost all the sago factories are family owned and most of them are farmer turned entrepreneurs. These
owners get their equity from the surplus fund that they generate from agricultural income. Many of the
sago factory owners were also previously brokers doing business as raw material suppliers to the industry.
They all usually maintain a current account in a commercial bank or a co-operative bank to en-cash the
cheques received from SAGOSERVE or traders.

Only 50% of them are availing credit from commercial or co-operative banks, while the rest of them
manage with their own funds or borrowed money from relatives or money lenders for a short period.
Availing credit facility for working capital is more prevalent than availing credit for term loan. Most of
them feel that their real incomes have reduced over the years due to the escalation of cost and
competition. Most of them tend to plough back their profits into improving their factories. However some
are even investing in transport business and other local businesses. The sago factory owners situated at
semi urban and urban centers are able to obtain credit from the banks easily than those situated in the
rural areas.

The following problems are expressed in financing the sago industry by the bankers.

• The bankers feel that the sago factory owners do not route their transactions through their bank
accounts.
• Multiple finance
• It is a seasonal business and therefore fixing credit limit is difficult.
• Non maintenance of proper accounts.
• Difficulty in measuring the starch stored in the tanks.
• Highly fluctuating price of sago and starch.
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 SALEM SAGO & STARCH CLUSTER

Though most of the sago factory owners who have availed credit facilities from the banks expressed
satisfaction with their services yet some are disillusioned with the behavior of the bankers. They feel the
credit limits offered by the banks are not adequate, are unrealistic and not sanctioned in time. They
generally feel their cash credit facilities should be enhanced when the raw material prices are low so as to
enable them to purchase enough material for the entire season.

4.6 INFRASTRUCTURE, POLICES REGULATIONS

The Government is providing with all the necessary infrastructure for the growth of the industry. The
electricity board is providing the necessary power supply and is also giving advice on economising
electricity charges.

The Government through the pollution board controls and monitor the pollution control efforts taken by
the sago factory owners. However the units feel difficulty in getting clearances from the board.

Through SAGOSERVE and District Industry Center, the Government disseminates the details about the
policies and incentives offered to the industry. Overall the cluster enjoys excellent logistic and
communication facilities.

5. OTHER SUPPORT INSTITUTIONS

5.1 THE INDUSTRY ASSOCIATION
There are seven Taluk associations at Salem, Attur, Rasipuram, Chellappampaty, ChinaSalem,
Thambampatty and Peppiveedipatti, which are acting for the benefit of the sago/starch manufacturers.
Normally the Taluk association collects Rs1000 per person per year as a subscription amount. However
the participation rate of the members in the association is not regular. But at the time of crises they come
together and support the actions actively. Yet sometimes they are unable to arrive at a consensus for
major issues like selling of wet starch.

The central association uniting all the Taluk associations has been operating at Salem since 1981 and is
now called as “Tamil Nadu Sago and Starch Manufacturers Association”. The issue raised by the
Government order on the ESI subscription to the women labourers united the Sago factory owners to fight
together against the order. They struggled together with the Government to exempt the industry from the
imposition of central exercise tax and have succeeded in their efforts.

During 1986 when the pollution control board sealed 100 and odd factories for non-compliance of
pollution norms, the central association again took up their cause to the Government and revoked the
closure order of the board. Simultaneously they educated there members to construct suitable pollution
control structures at there factories.
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 SALEM SAGO & STARCH CLUSTER

Last year when the prices of Sago and starch fell low and caused heavy loses to the manufacturers, the
association took preventive actions by fixing a floor price for their Sago and starch products for some
time.

Now they have taken up the matter of imposition of cess by the regulated markets for the raw material
purchased by them and argue with the authorities that cess should not be imposed on tapioca as it is a
perishable commodity. They also arrange meetings/seminars with technical experts like experts on
pollution control etc. to impart technical knowledge to their members.

However the members feel that while the association is very active in the matters pertaining to the
Government policies, other developmental activities are not given adequate importance. They want
guidance from the association in the following areas.

• Modernising their factories to face local and global competition.

• To impart knowledge regarding the correct method of usage of chemicals to improve the quality
of starch and sago.
• Training on modern management practices.
• Training on modern accounting practices.
• To impart knowledge on diversified products of sago and starch.
• To undertake adequate marketing efforts to expand the market for sago and starch and to increase
their profitability.

5.2 OTHER INSTITUTIONS

Besides SAGOSERVE, the following institutions are active in the growth and development of the starch
and sago manufacturers and traders of the Sale m cluster.

C.T.C.R.I- The Central Tuber Crops Research Institute, Shreekariyam, Thriuvanathapuram, Kerala, is
doing pioneering research and development works on tuber crops especially tapioca. It has released
number of high yielding, high starch varieties for the benefit of the farmers and industry. It has also
standardised the manufacturing processes of many tapioca based products. It offers technology to the
entrepreneurs who want to set-up industries on tapioca based products. It has also developed and
patterned some useful equipment for the industry.

C.T.C.R.I. is successfully collaborating itself with a S.B.I. Project Uptech, Samalkot at Andhra Pradesh in
imparting technical knowledge on modern methods of cultivation to the farmers growing tapioca as well
as to the sago factory owners on modern methods of processing. However, the distance between the
cluster and the institution hampers effective linkage between the institution and the cluster actors.

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 SALEM SAGO & STARCH CLUSTER

TAMILNADU AGRICULTURAL UNIVERSITY (TNAU) COIMBATORE

The T.N.A.U is a reputed institution doing research on tapioca and has released many high yielding high
starch varieties like Mulluvadi, CO2, CO3 for the farmers of Tamil Nadu. Through its engineering
department it has developed many labour saving equipment for the industry. The T.N.A.U research center
for tapioca and caster at Yethapur is doing excellent research work on tapioca cultivation and imparting
knowledge to the farmers on modern methods of tapioca cultivation. Currently the Project Uptech (Sago
Industry) has entered into an M.O.U. with the university to implement its agricultural programme through
the latter's research station at Yethapur. In this programme the farmers will be educated on the modern
methods of tapioca cultivation through demonstrations, village meetings, mass media etc. Sufficient
amount of planting materials of improved varieties of tapioca will be developed and supplied to farmers
through this programme.

The Home Science Department of T.N.A.U. has developed many recipe based on sago, which can be
profitably utilised for marketing sago products. However, the sago factory owners do not have any
effective linkages with this institution.

DISTRICT INDUSTRY CENTRE

The D.I.C. is situated at the district head quarters and offers many incentives to the small scale industries
situated in the backward areas. Their main work is to register the small scale units and give them a
registration certificate. They also provide subsidy on electricity charges incurred by the entrepreneurs and
help the latter in getting licenses to set-up a unit.

POLLUTION CONTROL BOARD

The Pollution control board takes steps to control the pollution so as to maintain the environment. They
control and monitor the pollution control measures taken by the sago factory owners. However they do
not give any technical guidance or plan layout for the erection of effluent treatment plants.

REGIONAL TESTING LABORATORY, SALEM

This laboratory is under the control of the Department of Industry and Commerce of the Government of
Tamil Nadu and provides facilities for testing of sago and starch for various parameters including
compliance under the I.S.I. standards.

DEPARTMENTS OF AGRICULTURE AND HORTICULTURE

The Departments of Agriculture and Horticulture provide necessary extension work to impart knowledge
on modern method of cultivation for the farmers.

NABARD
The District Development Officer of National Bank for Agriculture and Rural Development is helping the
district administration in formulating developmental plans for the industries in the district.

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 SALEM SAGO & STARCH CLUSTER

COMMERCIAL BANKS
There is a good network of commercial banks in the cluster. They offer both cash credit and term loan
facilities to the sago industry. However, only 50% of the industry is so far covered by institutional finance
and there is a large gap between the need for the credit and its availability.

CO-OPERATIVE BANKS
There is a good network of co-operative banks in the cluster. They also offer credit facilities to the sago
factory owners. Obtaining loans from Co-operative Banks is somewhat easier than obtaining loans from
commercial banks. However their credit limits are lesser and interest rates are higher.

5.3 THE CLUSTER LINKAGES

The following diagram presents a cluster map of the linkages existing in the cluster.

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 SALEM SAGO & STARCH CLUSTER

CLUSTER MAP

Public Policy

Commercial Service Provides

Commercial Banks, Cooperation Banks, Regional Testing Lab

Backward Forward

Linkages Linkages
Selling Agents
Raw material
(Traders)
Supplies (Farmers)

Brokers Sago Serve

Starch and Sago
Factories
Whole Sale
Machinery
Suppliers
Consumers

Spare parts
Suppliers [Link], T.N.A.V., C.F.T.R.I. Private consultants etc

Public and private support & Service institutions

International Factors

25
 SALEM SAGO & STARCH CLUSTER

6. PROBLEMS IDENTIFIED

• The starch and sago is being consumed mostly in a few northern states of India. In Tamil Nadu its
consumption is very low. Some concerted marketing efforts are needed to increase the market for
the sago and starch products to the rest of India as well as Tamil Nadu.

• Though there is an immense scope for product diversification for sago and starch products yet
noticeable efforts are not being taken in this regard.

• Lack of knowledge on market and consumption pattern hampers the growth of the industry.

• The latest tapioca varieties released by C.T.C.R.I. and T.N.A.U. have not reached the farmers.
The existing high yielding varieties are loosing their yield potential.

• Tapioca is available to the industry only for a very short period. Therefore concerted efforts are
needed to introduce new short term varieties suitable for multiple seasons so as to stretch the
availability of the raw material supply.

• Poor quality of sago and starch because of the use of chemicals posses a major problem in
marketing. The sago and starch producers have no knowledge about the correct and appropriate
use of edible grade chemicals to improve the quality. No scientific information on use of
chemicals from the concerned institutions has reached these producers.

• The existing processing methods are outdated and the machineries deployed are old and
inefficient. Therefore there is an urgent need to introduce cost effective efficient machinery to the
industry. The prototype machinery already developed by C.T.C.R.I., T.N.A.U. and other
institutions has not reached the sago and starch producers.

• Majority of the sago/starch factory owners lack technical knowledge about the modern
management and accounting skills

• Pollution-control is becoming a major problem for the sago industry. There is no standardised
cost effective design developed for the sago/starch manufacturers; neither by any institution and
nor by the pollution control board itself.

• The sago and starch factory owners do not get adequate and timely credit from financial
institutions.

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 SALEM SAGO & STARCH CLUSTER

• There is lack of interaction between the sago/starch manufacturers and other cluster actors. There
is lot of mistrust and lack of cooperation.

7. SWOT ANALYSIS
STRENGTHS
• It is a naturally evolved cluster.
• Presence of SAGOSERVE at Salem for marketing the cluster's products.
• Availability of a large number of traders especially those originating from the northern states.
• Availability of qualified innovative and skilled machinery manufacturers.
• Existence of excellent logistic facility.
• Availability of excellent communic ation facility.
• Easy to adopt technology to manufacture starch and sago.
• Local availability of local mechanics, engineering workshops and laths.
• Availability of well equipped machinery manufacturing units at Salem and Erode.
• Easy availability of skilled labour.
• Well established brokerage system to affect uninterrupted supply of raw material.
• Easy availability of raw material at proximity of the sago factories and nearby areas.
• Easy availability of spare parts and machinery at Salem.
• Excellent network of commercial and co-operative banks in the cluster.
• High level adaptability of the entrepreneurs to new technology.
• Introduction of innovative machinery by the dynamic machinery manufacturers.
• Availability of reputed institutions like C.T.C.R.I. and T.N.A.U.
• Young educated entrepreneurs taking up the manufacture of Sago and starch.
• Strong and proactive central association for the Sago and starch manufacturers.
• Functioning of Project Uptech by S.B.I. at Salem.

WEAKNESSES
• Dependence on a few northern states for markets.
• Long distance between the production center and consuming center.
• Lack of product diversification.
• Diminishing quality standards of the sago products due to improper use of chemicals.
• Unhealthy practices adopted by some traders affecting genuine trade activities.
• Usage of primitive technology in many factories.
• Unscientific layout of factories. 27
 SALEM SAGO & STARCH CLUSTER

• Under capacity utilisation.

• Unhygienic processing practices.
• Non availability of mechanics at the time of need
• Problem posed by pollution and high cost of effluent treatment plants.
• Non availability of quality raw material.
• Availability of raw material only for a short period.
• Non availability of quality water supply.
• High cost of electricity.
• Non availability of adequate and timely credit.
• Lack of innovative capability of the entrepreneurs.
• Lack of healthy linkages among the cluster actors.
• Non availability of cost effective modern processing methods from the institutions concerned.
• Lack of knowledge of markets and consumption pattern.
• Very slow penetration of lab to land practices.
• Lack of managerial skills.
• Lack of proper accounting systems.

OPPORTUNITIES
• Consumption of sago can be increased many fold within Tamil Nadu and nearby states by
appropriate marketing efforts.
• Diversified products of sago like wafers, pappads, vermicelli, salty-snacks can be effectively
marketed.
• Making value added products of starch like modified starches, oxidised starches, Glucose,
Fructose, Gums etc can fetch better prices.
• Brand building exercise undertaken jointly will fetch good price for the products of the cluster.
• Usage of methane gas to produce electricity can minimize electricity charges.
• Usage of tippi profitably for the manufacture of cattle feed and for the production of methane.
• Usage of labour savings cost effective modern machinery to reduce cost.
• Standardisation of raw material purchasing to minimise brokerage.
• Purchase of inputs through consortium of manufacturers will reduce the cost.
• A common facility center e.g. common starch processing center to purify and dry the starch will
make the product more competitive cost wise and quality wise.

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 SALEM SAGO & STARCH CLUSTER

THREATS
• New products at cheaper prices may enter the existing market to replace sago and starch products.
• Cheap imports may invade India in the near future.
• High expectation of customers in the matter of quality and price.
• Lack of trust among the cluster actors.

8. VISION STATEMENT

"The Salem sago & starch cluster will become a quality manufacturing base for the production of
branded sago/starch and their derivatives catering to national and international markets by the
year 2007."

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 SALEM SAGO & STARCH CLUSTER

ANNEXURE 1
FUNCTIONAL DETAILS OF SAGOSERVE

A. MAIN OBJECTIVES:
(1) To remove the middlemen from the scene of trade and to ensure better prices for the tapioca
finished products.
(2) To provide warehouse and credit facilities to members.
(3) To improve tapioca cultivation and the state of the sago and starch industry and thereby the
economic condition of the farmers and the manufacturers.
(4) To improve productivity in the tapioca based industry and disseminate market intelligence to its
members.
(5) To generate employment in rural areas for skilled and unskilled labour.
(6) To strengthen the co-operative movement in the sago sector.

B. INCENTIVES OFFERED BY THE GOVERNMENT:

(1) Concessional TNGST rate of 2% only for sale through SAGOSERVE (which is otherwise 4%).
(2) Single point tax system. Exemption from the payment of C.S.T. if purchased from SAGOSERVE
(3) State participation in the share capital structure of the society.

These incentives have played a vital role in strengthening the SAGOSERVE and helped the sago/starch
industry to thrive in an appreciable manner.

C. GROWTH OF SAGOSERVE
As on 31.08.2000 the number of member units has gone up to 765 and the capital has grown to Rs567.11
lacs, which includes the share of Rs.99.82 lacs of the Government of Tamil Nadu. The SAGOSERVE has
steadily grown in size as well as in strength. It has 10 go-downs (storage houses) of its own with a
capacity of about 2.25 lac bags each. This growth was achieved by SAGOSERVE due to the loyalty of its
members and hard work of their staff. The table furnished below speaks volumes and verses of this
society.

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 SALEM SAGO & STARCH CLUSTER

DETAILS OF MEMBERSHIP, TURNOVER AND TAX REMITTANCE

Year Number Turnover (in lacs) Revenue to State Government (in lacs)
of No. of Sale TNGST AST Total Profit
member- Bags Value
s Rs. Rs. Rs. Rs. Rs.
1981-82 168 0.19 40.63 1.89 0.16 2.05 --
1982-83 454 7.52 2701.52 117.78 4.12 121.90 2.69
1983-84 536 11.27 3880.00 178.85 11.94 190.79 6.20
1984-85 604 16.06 3153.00 137.58 31.63 169.21 4.55
1985-86 633 8.82 2973.00 132.17 33.83 166.00 32.09
1986-87 657 11.39 4517.00 224.76 62.66 287.42 22.06
1987-88 653 13.19 4550.00 208.16 62.76 270.92 18.82
1988-89 668 11.85 3328.00 168.16 47.42 215.97 19.18
1989-90 660 9.05 4520.35 211.27 89.11 295.87 36.54
1990-91 678 9.07 5247.15 137.04 130.96 268.00 11.39
1991-92 710 13.31 5972.61 138.16 145.84 284.00 11.30
1992-93 729 14.77 6740.74 156.61 165.95 322.56 27.37
1993-94 752 14.79 10725.97 247.53 266.53 514.49 22.30
1994-95 780 20.27 11795.59 273.00 292.00 565.00 20.10
1995-96 784 22.00 14025.99 326.18 345.66 671.84 63.75
1996-97 806 21.14 18995.58 397.45 473.88 871.33 38.76
1997-98 815 20.16 19273.68 392.19 489.98 882.17 63.46
1998-99 805 23.54 16614.91 337.10 410.56 747.66 110.00
1999-2000 791 20.67 21514.17 429.40 537.20 966.60 37.30

The formation of the society has created a positive impact on the economy of the Salem district besides
contributing to a substantial and assured income to the state exchequer in the form of taxes.

D. SERVICES RENDERED BY THE SAGOSERVE TO ITS MEMBERS:

1) The stocks received from the members are immediately unloaded and a lot number is assigned.
2) The go-down section is functioning round the clock except on Sundays and declared holidays.
3) Samples are drawn from the member's lots and displayed in the daily Tender Hall.
4) As soon as the sale is confirmed by a member, he/she is paid the value of the goods after retaining
Rs.30 per bag for deduction. For the unsold stock, 50% of the value of the goods is paid as advance.
5) The goods of the members are stored in the go-downs at a nominal rent till their sale is confirmed.
6) Society issues tax paid affidavits to its members in order to aid in filing their sales tax returns.
7) Tie up arrangements with the banks for sanction of working capital loan to the members.

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 SALEM SAGO & STARCH CLUSTER

E. SERVICES TO THE MERCHANTS

1- The society is arranging facilities to buy good quality of sago and starch through the daily tender
system under one roof for its registered merchants.
2- The registered merchants are also paying a reduced rate of sales tax at 2% against the normal 4%
of S.T. payable for purchase of sago/starch outside SAGOSERVE. There is no C.S.T. for
subsequent inter-state sale of goods bought from SAGOSERVE.
3- The merchants are also allowed to keep the stocks up to a maximum of 45 days to lift the stock
after making payments in 3 spells.
4- No interest or storage rent is being charged to the merchants upto 5 days from the date of tender.
5- Certificates are issued for purchases made from SAGOSERVE to file their sales tax returns.
6- Required tender forms are supplied to the merchants.

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