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THE PERFORMANCE OF SAGO AND STARCH INDUSTRY CLUSTER IN SALEM

Article · August 2010

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Dr.E. BHASKARAN
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 THE PERFORMANCE OF SAGO AND STARCH INDUSTRY CLUSTER

IN SALEM

Dr. E. Bhaskaran. B.E., M.I.E, M.B.A., Ph.D., C.E., D.Sc. 1

_____________________________________________________________________________

1. INTRODUCTION:

The Agricultural Produce, Tapioca (Manihot Esculenta Crantz) was introduced in

India during the later part of the 18th Century and today, in India tapioca is grown over an area

of about 3 lakhs hectares, with a production of 58 to 60 lakhs tonnes of tubers. Though Kerala

ranks first in cultivation and production in the country, Tamilnadu ranks first in respect of

processing of tapioca into starch and sago and hence this crop has now acquired a status of one

of the important commercial crops in the State of TamilNadu.

In Tamilnadu, tapioca crop is being cultivated over an area of about 82000 hectares

providing employment for thousands of workers over fields and in 800 processing units. In

Salem District alone, 34000 hectares of land is under tapioca cultivation and there are 650 units

now called as Sago Cluster, engaged in tapioca processing.

The manufacturers of starch and sago in Salem district faced a lot of problems

pertaining to credit and marketing of tapioca products. Merchants used to offer low prices for

their goods and middlemen exploited this situation in the absence of organized marketing and

warehousing facilities. To get over these problems the sago/starch manufacturers formed

"Salem Starch and Sago Manufacturers' Service Industrial Co-operative Society Ltd." Salem in

1981 under the Tamil Nadu Co-operative Society Act 1961. It was registered on 21.07.1981 and

commenced its business on 27.02.1982. This society, popularly known as "Sagoserve" through

1
Deputy Director of Industries and Commerce, Government of Tamil Nadu, Chennai 32
 2

out the world, is functioning under the administrative control of the Industries Commissioner and

Director of Industries and Commerce, Government of Tamilnadu.

The Objectives of Sagoserve is to

 Strengthen the Co-operative movement in the Sago & Starch sector.

 Remove the middlemen from the scene of Sago & starch trade and to ensure better prices

for the tapioca finished products.

 Advance credit to members.

 Improve productivity of the tapioca finished products and to disseminate

market intelligence to its members.

 Generate employment in rural areas for skilled and unskilled labour.

 To provide warehouse and credit facilities to members.

 To improve tapioca cultivation and the state of the sago and starch industry and thereby

the economic condition of the farmers and the manufacturers.

The Managing Director is the Chief Executive Authority of the Society guided by the policy

making body namely the Board of Directors elected by the members from amongst themselves.

The Managing Director is assisted by 3 Functional Managers namely Manager

(Administration), Manager (Trade) & Manager (Accounts) with about 116 committed staff of the

Society.

After the emergence of Sagoserve, on the horizon of tapioca industry, the

bargaining power of manufacturers has substantially increased in the field of marketing and the
 3

menace of middlemen in this trade has been completely overcome. Due to successive efforts of

the society, sago/starch units have now become the backbone of Salem District's Rural Economy.

The District offers good raw material, cheap labour and good sunshine for a longer

period of the day throughout the year; helping manufacturers to produce more tapioca finished

products eg. Sago and starch and therefore the District of Salem are known as the land of

Sago, (Sago Cluster) even in the international forums. In and around Salem the yield of tapioca is

about 25-30 t/ha, highest in the World. National average is 19 t/ha and World average production

stands at 10 t/ha.

2. LITERATURE SURVEY

Tapioca and its finished products are used as food, animal feed and as raw material for

several industrial products. Tapioca is considered as the cheapest source of Carbohydrates

among the cereals, tubers and root crops and is a staple diet in many parts of Africa, South

America & Asia. About 500 million people eat tapioca in the World. Nutritionally, it contains

98% Carbohydrates and appreciable amount of Calcium and Vitamin-C. India is one of the

leading countries in tapioca production.

Tapioca in Paper Industry Tapioca in Food Industry Tapioca in Textile Industry

 4

TAPIOCA CHIPS & PELLETS

With the advent of an industrial development, facilities are set up to process tapioca roots

into chips, flour and pellets. Tapioca pellets are in increasing demand for animal feed in

European countries and Australia.

Sago is used to prepare Khichadi, Pappad, Vadai, Kheer (Payasam), Halwa, Puri,

Pudding, Uppuma, Laddu, Chiwda, Pakoda, Chikki, Murukku, Sago rice and Sundal.

TAPIOCA IN STARCH INDUSTRY

Tapioca flour (starch) is employed as a feedstock by industries making products such as

glucose, soup, candy, pudding, sausages, bread, ice creams, noodles, vermicelli and other fancy

foods. Tapioca flour is used for making glue, which is an important raw material for the plywood

industry. It becomes sticky, and then it is mixed with hot water and certain chemicals. The

industrial glues are Dextrin and Oxidized Starch.

In paper industry, surface treatment is required in the production of quality papers. A

solution made from tapioca flour and other substances like sizing agent and pigment particles are

used for the surface treatment process.

Tapioca flour is used by the textile industry, in treating yarn prior to weaving and in

fabric processing. This makes fabric smoother and increases its tensile strength.
 5

Alcohol Industry: In modern times, priority has been given to alcohol along with other

non-oil energy sources like wind, solar & bio-gas. Tapioca flour is used to produce alcohol and is

used as fuel.

OVER A DECADE SINCE INCEPTION, SAGOSERVE HAS REACHED NEW HEIGHTS.

Sagoserve Cluster members send their finished goods for sale through the society. On receipt

of goods, the member is paid 50% of the value of the goods as advance and consignment is

assigned a 'Lot Number'. Samples drawn from these consignments are displayed for 'Tender

Sale' conducted daily except on Sundays and declared holidays. After paying a tender deposit of

Rs.1, 50,000/- the buyers are registered with the society and only then they can participate in the
 6

tenders. At present both industrial concerns as well as private traders have registered themselves

as buyers at the Sagoserve.

After verification of samples of starch and sago in the tender hall the traders quote

their rates in secret and the results are announced after tabulation around 2.30 P.M. The member-

producer has the option of confirming the highest rate offered for his goods. Once he confirms

the sale he is paid another additional advance calculated with reference to the sales rate after

keeping Rs.30/- per bag for recoverable expenses at the time of final settlement. The goods of the

members, till the confirmation of the sale and those of the buyers, till they take delivery, are

stored in the Sagoserve godowns at a nominal godown rent.

As the Sago and Starch Industry Cluster in Salem is performing well there is need

for study on the Physical and Financial Performance for the benefit of members and policy

makers.

2. OBJECTIVES OF THE STUDY:

The objectives are:

(i) To study the Physical and Financial Performance of Sagoserve for the period from

1981-82 to 2009-10.

(ii) To study the interrelationships exists between the performance variables like No. of

Bags produced, Sales Value, Revenue to State Government and Profit earned.

(iii) To study about the implementation of Micro, Small Enterprises -Cluster Development

Programme (MSE-CDP) in Sago and Starch Industry Cluster in Salem.

 7

3. METHODOLOGY:

The data structure for the study is based on official publications like Policy Note and

Performance Budget of the MSME Department, Government of Tamil Nadu and website of

sagoserve. The data were analysed using Descriptive Statistics, Compound Annual Growth Rate

(CAGR), Trend Analysis, Correlation Analysis and Regression Analysis.

4. PRELIMINARY ANALYSIS

Table 1 gives the descriptive statistics on No. of Bags, Sales Value, State Government

Revenue and Profit.

. Table-1: Descriptive Statistics

No of bags Sales in Revenue in Profit in
lakhs lakhs lakhs
N Valid 28 29 28 29
Missing 1 0 1 0
Mean 15.2589 13120.0272 466.2746 58.9614
Std. Error of Mean 1.03940 1632.72399 53.16721 11.86448
Median 15.3400 14025.9900 433.7800 32.0900
a a a
Mode .19 40.62 2.05 .00a
Std. Deviation 5.49999 8792.48779 281.33444 63.89220
Variance 30.250 7.731E7 79149.067 4082.213
Skew ness -.581 .153 .579 1.321
Std. Error of Skew ness .441 .434 .441 .434
Kurtosis .581 -1.347 -.568 .446
Std. Error of Kurtosis .858 .845 .858 .845
Range 24.22 30704.38 1047.51 207.22
Minimum .19 40.62 2.05 .00
Maximum 24.41 30745.00 1049.56 207.22
Sum 427.25 380480.79 13055.69 1709.88
a. Multiple modes exist. The smallest value is shown
Source: Computed Data
 8

4.1. THE PHYSICAL PERFORMANCE OF SAGOSERVE.

Fig.1 No. of Bags Produced

30.00
No. of Bags

25.00
20.00
15.00
10.00
5.00
0.00
1981-82
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
2000-01
2001-02
2002-03
2003-04

2005-06
2006-07
2007-08
2008-09
2009-10
2004-05
Year

Source: Sago Serve, Salem.

Figure 1 gives the Compound Annual Growth Rate of No. of bags produced in lakhs,

which is 17.47 %. As per table 1, the mean no. of bags produced is 15.25 lakhs with Standard

Deviation of 5.49. The minimum no. of bags produced is 0.19 lakhs and the maximum no. of

bags produced is 24.91 lakhs.

4.2 THE FINANCIAL PERFORMANCE OF SAGOSERVE.

Fig.2 Sale value

40000.00
Rs. lakhs

30000.00
20000.00
10000.00
0.00
1981-82
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
2000-01
2001-02
2002-03
2003-04

2005-06
2006-07
2007-08
2008-09
2009-10
2004-05

Year

Source: Sago Serve, Salem.

 9

Figure 2 gives the Compound Annual Growth Rate of Sale Value of No. of bags

produced in lakhs, which is 25.68 %. As per table 1, the mean sale value is Rs.13120.03 lakhs

with Standard Deviation of 8792.49. The minimum Sale Value is Rs. 40.62 lakhs and the

maximum Sale Value is Rs.30745.00 lakhs.

Fig.3 Financial Performance

1500.00
Rs.in lakhs

1000.00
500.00
0.00
1981-82
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
2000-01
2001-02
2002-03
2003-04

2005-06
2006-07
2007-08
2008-09
2009-10
2004-05
Year

Revenue State Govt. Rs. Net Profit (Rs.)

Source: Sago Serve, Salem.

Figure 3 gives the Compound Annual Growth Rate of State Government Revenue in

lakhs, which is 21.65 %. As per table 1, the mean revenue to State Government is Rs. 466.28

lakhs with Standard Deviation of 281.33. The minimum State Government Revenue is Rs. 2.05

lakhs and the maximum State Government Revenue is 1049.56.

Figure 3 gives the Compound Annual Growth Rate of Net Profit in lakhs, which is

25.68 %. As per table 1, the mean Net Profit value is Rs. 58.96 lakhs with Standard Deviation of

63.89. The minimum Net Profit is Rs. 0.00 lakhs during 1981-82 and the maximum Net Profit is

Rs.207.22 lakhs during 2009-10.

 10

5. STATISTICAL ANALYSIS

5.1 Trend Analysis

The year (Y) is taken as independent variable and No. of bags (N) is taken as dependent

variable and the trend equation obtained is N= 8.906+0.438 Y, with correlation coefficient of

0.654. It is found that the annual average increase in no. of bags is 0.438 lakhs.

The year (Y) is taken as independent variable and Sale Value(S) is taken as dependent

variable and the trend equation obtained is S = -1546.87 + 977.79 Y, with correlation coefficient

of 0.947. It is found that the annual average increase in sales is Rs.977.79 lakhs.

The year (Y) is taken as independent variable and State Government Revenue (R) is

taken as dependent variable and the trend equation obtained is R= 163.46 + 20.88 Y, with

correlation coefficient of 0.611. It is found that the annual average increase in State Government

Revenue is Rs.20.88 lakhs.

The year (Y) is taken as independent variable and Net Profit (P) is taken as dependent

variable and the trend equation obtained is P= -28.43 + 5.826 Y, with correlation coefficient of

0.776. It is found that the annual average increase in sales is Rs. 5.826 lakhs.

5.2 Correlation Coefficient Analysis

The Correlation Coefficients is given in table-2 for no. of bags, sales value, state

government revenue and profit.

 11

Table-2: Correlations

No of Sales in State Government Profit in

bags lakhs Revenue in lakhs lakhs
No of bags Pearson Correlation 1 .751** .823** .298
Sig. (2-tailed) .000 .000 .124
N 28 28 28 28
** **
Sales in lakhs Pearson Correlation .751 1 .767 .684**
Sig. (2-tailed) .000 .000 .000
N 28 29 28 29
Revenue in Pearson Correlation .823** .767** 1 .202
lakhs Sig. (2-tailed) .000 .000 .302
N 28 28 28 28
**
Profit in lakhs Pearson Correlation .298 .684 .202 1
Sig. (2-tailed) .124 .000 .302
N 28 29 28 29
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Computed Data

The Correlation Coefficient between no. of bags and sale value is 0.751 which means

there is 75.1% relationship between no. of bags produced and sale value.

The Correlation Coefficient between no. of bags and Revenue to State Government is

0.823 which means there is 82.3% relationship between no. of bags produced and Revenue to

State Government.

The Correlation Coefficient between no. of bags and Net Profit is 0.298 which means

there is only 29.8% relationship between no. of bags produced and Net Profit needs further

improvement.
 12

The Correlation Coefficient between Sale value and Revenue to State Government is

0.767 which means there is 76.7% relationship between sale value and Revenue to

State Government.

The Correlation Coefficient between sale value and Net Profit is 0.684 which means there

is 68.4% relationship between sale value and Net Profit.

The Correlation Coefficient between Revenue to State Government and Net Profit is

0.202 which means there is only 20.2% relationship between Revenue to State Government and

Net Profit needs further improvement.

5.3 Regression Analysis

Model-1: P = -6.231 +0 .005 S. It is found that for one percent increase in sales value the profit

increases by 0.005 percent.

Model-2: R= 140.097 + 0.026 S. It is found that for one percent increase in sales value the

revenue increases by 0.026 percent.

Model-3: P = 5.546 + 3.156 N. It is found that for one percent increase in no. of bags the profit

increases by 3.156 percent.

Model-4: R= -176.184 + 42.104 N. It is found that for one percent increase in no. of bags value

the revenue increases by 42 percent.

Model-5: S = -4725.24 + 1128.245 N. It is found that for one percent increase in no. of bags the

sales increases by 1128 percent.

 13

6. FINDINGS AND CONCLUSION

 The study have been carried out to measure the performance of Sago and Starch Industry

Cluster (Sagoserve) in Tamil Nadu for the period 1981-82 to 2009-10 based on four

important performance variables like No. of bags produced, Sale Value, Revenue to State

Government and Net Profit. .

 The Physical Performance reveals that there is upward trend in No. of bags produced.

 The Financial Performance reveals that there is an upward trend in the Sale Value,

Revenue to State Government and Net Profit.

 There is high degree of relationship between the no. of bags and sale value and no. of

bags and revenue to State Government. The relationship between the no. of bags and net

profit needs further improvement by reducing the cost.

 In order to improve quality of Sago and Starch Products produced by the member units of

Sagoserve, the society has introduced a scheme to modernize its member units by

extending substantial grant whereby a subsidy at the rate of 50% subject to maximum of

Rs.4.00 lakhs to each member-unit is released by sagoserve. The State Government is

reimbursing 50% cost of the subsidy to the sagoserve, subject to maximum of Rs.2.00

lakhs per unit. The entire State Government subsidy of Rs.65.15 lakhs sanctioned for the

years 2006-07 and 2007-08 was utilized in fully disbursing the same to 74 beneficiary

units. The scheme ensures better price for their products.

 In testing the samples of Sago and Starch products and obtain certifications in time, the

Sago and Starch units are faced with many problems due to non-availability of sufficient

testing facilities at Salem. In order to overcome this deficiency, Sago has decided to setup

an Analytical Laboratory under Common Facility Centre by availing financial assistance

 14

from Government of India under Micro Small Enterprises- Cluster Development

Programme (MSE-CDP).

 The Government of India approved the Sago Cluster for setting up of Common Facility

Centre at Sagoserve at a total project cost of Rs.498.00 lakhs.

 The Government of India have sanctioned an amount of Rs.120.00 lakhs for setting up of

an Analytical Laboratory and Rs.10.00 lakhs for soft interventions under Phase-I. An

amount of Rs.4.00 lakhs, released by the Government f India towards soft intervention,

has already been utilized by the Sagoserve.

 Further, the required equipments and machineries have been purchased and installed in

Sagoserve towards setting up of an Analytical Laboratory for which the Government of

India have released its portion of Rs.39.63 lakhs as grant. The analytical laboratory has

commenced its testing service on 1.2.2010.

 The Micro Small Enterprises - Cluster Development Programme (MSE-CDP) will help

the Sagoserve members in Soft Interventions like technical assistance, capacity building,

exposure visits, market development, trust building etc. and hard interventions like

common facility centres like creation of tangible “assets” like testing facility, design

centre, production centre, effluent treatment plant, training centre, R & D centre, raw

material bank / sales depot, product display centre, information centre etc.
 15

Reference

1. Industrial Policy Note (2000-01 to 2010-11), MSME Department, Government of

TamilNadu.

2. Performance Budget (2000-01 to 2010-11), MSME Department, Government of Tamil

Nadu (includes Performance of Department of Industries and Commerce, SIDCO, and

TANSI).

3. Official website of Sagoserve, Salem.

4. E.Bhaskaran, A Study on the Performance of Industrial Cooperative societies in

TamilNadu, NCDC Bulletin, Vol. No. XXXXIV, June 2010, No.2, pp-2-7.

5. Darren George and Paul Mallery, SPSS For Windows, 13.0 UPDATE step by Step, Sixth
Education, Pearson Education.
6. Bhaskaran.E, Government of Tamil Nadu, the Technical Efficiency of Chennai Auto

Industry Cluster, http://papers.sae.org/2011-28-0100

7. E. Bhaskaran, (2012) Technical Efficiency of Automotive Industry Cluster in Chennai.

Journal of The Institution of Engineers (India): Series C 93 (3):243-249

8. E. Bhaskaran, (2012) Lean Manufacturing Auto Cluster at Chennai. Journal of The

Institution of Engineers (India): Series C 93 (4):383-390

9. E. Bhaskaran, (2013) Sustainable Development in Indian Automotive Component

Clusters. Journal of The Institution of Engineers (India): Series C 94 (1):81-84

10. E. Bhaskaran, (2013) The Productivity and Technical Efficiency of Textile Industry

Clusters in India. Journal of The Institution of Engineers (India): Series C 94 (3):245-251

 16

11. E. Bhaskaran, (2014) The Productivity Analysis of Chennai Automotive Industry Cluster.

Journal of The Institution of Engineers (India): Series C 95 (3):239-249

12. Ethirajan Bhaskaran, (2016) The Quantitative Analysis of Chennai Automotive Industry

Cluster. Journal of The Institution of Engineers (India): Series C 97 (3):357-373

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