Friday, 27 May 2016

SAGO A PART OF INDONESIA

 THE SALEM CLUSTER
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. 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.
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
SAGOSERVE, SALEM TURNOVER FOR 1982-83
TO 1999-2000 TURNOVER RS. IN LAKHS
0
5000
10000
15000
20000
25000
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
YEAR
Y-Axis Rs. IN LAKHS
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
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.
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
Roasting
Drying
Polishing
Sieving
Sago
Bagging
3.3.2 PRODUCTION OF STARCH
The process flow chart for the production of starch from cassava is given in Fig.1. below.
Waste water
Residual pulp
Cassava Tubers
Washing
Peeling
Washing
Rasping
Screening
Setting of starch
Disintegration
Drying
Pulverizing
Sifting
Bagging
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.

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