Doing business within clusters - Partnerships and

networks; Case of Sago Cluster

K K KAUSHAL IFS
Managing Director
The views expressed in this presentation are the views of the
author and do not necessarily reflect the views or policies of the
Asian Development Bank Institute (ADBI), the Asian Development
Bank (ADB), its Board of Directors, or the governments they
represent. ADBI does not guarantee the accuracy of the data
included in this paper and accepts no responsibility for any
consequences of their use. Terminology used may not necessarily
be consistent with ADB official terms.

K.K.Kaushal M.D. SAGOSERVE

Sago Industrial Cluster

Introduction of the cluster and its
working

Formation of a marketing
cooperative; Sagoserve

Social capital and Cooperatives

Networks and Partnerships that

helped the IC to transform into EIC

Tapioca tuber (Cassava), which is rich in

carbohydrates, is the raw material for the SAGO
industry

Cassava is the 3rd largest source of carbohydrates, providing a diet to more

than 1 billion people

Cassava is the most drought tolerant crop and it yields ~12.5 tons per hectare
Tamilnadu, produces around 2-3 million tonnes of Cassava every year

Cassava also has numerous industrial uses,

which makes Cassava Production and
Processing as an Industrial Activity
Bio fuel
Animal feed
Ethno medicine
Cold water soluble starch
Bio degradable plastics
Glues & Adhesives
Modified starch for the
paper and oil industry

Production of alcohol

Products from Sago Industrial Cluster

SAGO

STARC
H

Sago manufacturing process

Raw material

Washing

Peeling

Roasting

Globulization

Drying

Polishing

Washing

Washing

Crushing

Starch
Separation

Packing

Sago Industries are majorly (~90%)

concentrated in the Southern states of India,
Tamilnadu
S.No

State

Tapioca
production in
Share(%)
tones (millions)

Kerala

2.637

48.60

Tamil Nadu

2.306

42.49

Andhra Pradesh

0.336

6.18

Nagaland

0.050

0.92

Assam

0.038

0.71

Meghalaya

0.030

0.55

Karnataka

0.014

0.26

Pondicherry

0.008

0.14

Manipur

0.003

0.06

Andaman Nicobar

0.002

0.04

10

Most factories are concentrated in the center of

the state, surrounding the Salem per-urban
areas

Enough raw material

(yield is 38 tones per
hectare) - highest in
the world

Suitable climate

Abundant sunshine

No consumption as
staple food

Around 400 SMEs150 million US$

output 4 lakh
families

Till 1981, Sago Industries did not have any

kind of association or common platform and
the industry was struggling in economic and
environmental terms

Merchants and middlemen ruled the entire trade

No credit or warehousing facility

No social capital, no institution or common platform small units

and scattered all over

Lack of direction and cohesion

Effluent problems

Power cuts

Accelerated land and water pollution

In 1981, Sagoserve was formed with the

following objectives ..

To improve the tapioca cultivation

To improve the economy of Tamil Nadu Tapioca cultivators and sago/starch

manufacturers.

To provide storage, marketing, financial and technical assistance to starch

/sago manufacturers

To purchase required materials and appliances for sago/starch industry and

to resell the same for cash /credit to members.

To exercise quality grading of the products

To meet the environmental standards prescribed by TNPCB to improve

quality of Starch/Sago

through modernization, by getting loans from

NCDC, Govt. of India and Tamil Nadu

Management of Sagoserve

Board of Directors(Elected 11 Members + Managing Director)

Manager(Admn.)

Manager(Trade)

Staff Members

Staff Members

Manager(Accts.)

Staff Members

Sagoserve
Infrastructure

Office

Warehouse

Tender hall

Tender quoting hall

Weighing station

Storage in warehouse

Current
Position
Member and Share Capital As On Date

No. of Members

354

Members paid-up share capital

Rs. 65.386 million

Government Share

Rs. 9.982

million

Total

Rs. 75.368 million

Functioning of Sagoserve
The registered members ( Sago and Starch manufacturers) send their finished
products i.e Sago and Starch to SAGOSERVE.

After weighing the consignment, the goods are unloaded in the Godowns by
assigning a lot no for each consignment. Samples are drawn from the unloaded
consignment and sent to tender section for display in the tender hall.

The sago samples are displayed in the tender for sale next day after getting
quality test reports from in house lab

The rates quoted by the merchants are tabulated and the top rate list is
published by 2.00 P.M. If the rates quoted by the merchants are satisfactory to
the members the member/member representative will confirm the tender sale.

Immediately on confirmation the members are paid advance for confirmed lots
after retaining RS.50/40 per bag of sago and starch respectively through their
banks .

Functioning of Sagoserve
The advance so paid will not attract any interest. If the sale is not
confirmed then the members are paid 70% of the tender value of the
goods as advance, which will carry interest of 12.5%.

After confirmation the merchants will take delivery of goods by paying

the entire value of the goods with tax and service charges as per tender
terms and conditions. After delivery of goods the members accounts
will be settled after deducting the charges due to SAGOSERVE and
advance if any received.

SAGOSERVE admits merchants by collecting Rs.5.00 lakhs as tender

deposit. The registered merchants are allowed to participate in the daily
tender conducted by SAGOSERVE by 9.30 A.M to collect samples for
ascertaining the quality and to quote the rate for starch and sago. The
merchants after verifying the samples displayed for sale in the tender
hall quote their rates.

Government Support

State participation in share capital of the society

The registered merchants are paying only the reduced rate

of VAT at 1% against 5% of VAT payable for purchase of
sago/starch outside the SAGOSERVE.

There is no C.S.T. for subsequent inter State sales for goods

bought only from SAGOSERVE.

Subsidy for modernization of manufacturing units

2012

2010

0
2008

10

2006

10

2004

30

2002

15

2000

40

1998

50

1996

60

1994

70

1992

AST in millions (Rs.)

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1990

0.5

1986

No. of bags in millions

1988

1984

1.5

1986

1982

2.5

1984

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1982

2012

2010

2008

2006

2004

TNGST/VAT in millions (Rs.)

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

Numbers at a glance
Turnover in millions (Rs.)

4000

3500

3000

2500

2000

1500

1000
500
0

Net Profit in millions (Rs.)

25

20

20

Sago Industry Cluster structure

Processors

Processors

Commissio
n Agents

Sagoserve

Bulk
Purchasers

Primary
Wholesaler

Primary
Wholesaler

Consumer

Consumer

SOCIAL CAPITAL THROUGH SAGOSERVE

As Cluster Management Authority
Sago
Serve

Sagoserve as nerve Centre

Salem Starch and Sago
Manufacturers Association
conducts its affairs from Sagoserve
The merchants association is also
Sagoserve based
The Joint Committee of the
Manufacturers and merchants
operates from Sagoserve
The research organisations like
Central Tuber Crops Research
Institute and state agriculture
university initiate their work and
discussion from Sagoserve
Press and voluntary organisations
contact Sagoserve with regard to
tapioca

Social
capital

Industries

Government and Sagoserve

For any matter related to
tapioca processing and
marketing , the government
looks to Sagoserve
Government subsidy scheme for
modernisation of sago industry
is administered by Sagoserve

Transformation into an EIC

Biological control of major pest

The Sago industry has

progressed exponentially with
innovations and adaptation of
eco friendly technology, wastes
are treated
collectively., that reduced cost
and environmental load

Testing for use of chemicals

Waste water treatment

Drip irrigation

Solar drying

Effluent treatment

The need for a partnership with Knowledge

Institutes

A Well Equipped Sago and Starch Testing Laboratory has

been setup in the Sagoserve under subsidy scheme from
MSME-CDP

The Total value of Lab equipments installed is Rs.9.2 million

This Lab started its functions from 01-02-2010

Testing of Sago Industry Cluster Samples

Lab Main Hall

Testing Process

Polycarbonate drying yard withstands

micro-climate variations

Outside view

Inside view

Polycarbonate Drying yard

Threats due to climatic changes avoided

Helps achieve consistency in product quality

Provides clean environment

Faster drying, temperature inside the yard is high compared to the

temperature outside

Reduces labour requirement

Effluent treatment plant

Effluent rich in biomass

Anaerobic digester generates methane

Methane used to generate power

Serves two purpose:

Treats the effluent

Helps in power generation

Collective ETP

Complete elimination of middlemen between

manufacturers and primary wholesaler due to social
capital creation

Control on quality - due to partnership with knowledge

institutes

Own assets of 25 million US$ from nil - due to

accumulated sale of eco friendly marketing strategies

Competitive sago industry cluster that is transforming it

into an EIC in the span of 7 years