SAGO PALM 26: 1−12 (2018)

A Value Chain Analysis of Small-Scale Sago Industries:
A Case Study of South Sulawesi, Indonesia
Marlisa Ayu Trisia1, 2*, Andi Patiware Metaragakusuma3,
Katsuya Osozawa4 and Hiroshi Ehara1,2*
1Applied Social System Institute of Asia, Nagoya University, Furo-cho, Chikusa-ku, Nagoya 464-8601, Japan
2

3

International Center for Research and Education in Agriculture, Nagoya University, Nagoya, JapanThe United Graduate School of Agricultural Sciences, Ehime University, 3-5-7 Tarumi, Matsuyama 790-8566, Japan
4

Faculty of Agriculture, Ehime University, 3-5-7 Tarumi, Matsuyama 790-8566, Japan* Corresponding author: M. A. Trisia (marlisaatrisia@yahoo.com), H. Ehara (ehara@agr.nagoya-u.ac.jp)

Abstract: A value chain analysis is conducted to identify the requirements for upgrading the quality of sago
starch, which enables producers to gain enhanced value, or for diversifying the product lines served. A casestudy of a sago starch value chain was carried out in two different locations around South Sulawesi. The
characteristics of small-scale sago industries and their production were also examined. The study revealed thatdried sago production is the most profitable and has the highest significant value-added process as compared towet sago and dange.
Keywords: profitability, sago palm, South Sulawesi, value chain
Introduction

Metroxylon sagu Rottb., known widely as sago palm,

is a tropical crop containing a large amount of starch inits trunk with average productivity four times that of
paddy rice (Ishizuka et al., 1995). According to the

Directorate of Perennial Crops (2015), sago palm is anative Indonesian plant covering a total area of around

107,906 hectares with a total production of 155,061
tons, mostly in Riau, Papua, Maluku, and Sulawesi.

Based on the World Development Indicators databasefrom the World Bank, the total gross domestic product(GDP) in Indonesia was worth 932.3 billion US dollars

in 2016 (World Bank, 2018), and sago exports
accounted for only 4.6 million US dollars in 2016. Thisvalue was far below other crops, such as palm oil (14.7

billion US dollars) and rubber (2.4 billion US dollars)(Directorate of Perennial Crops, 2015). In addition, thesago palm national program constituted only 0.05% of
the total state budget from 2012–2014 (Trisia et al.,2016). In fact, regardless of numerous advantages, sago
is still not treated as a priority crop for development tosupport economic and food security in Indonesia.

Many studies have been conducted to determine the effectof market disparities on food availability and pricetransmission in Indonesia (Warr and Yusuf, 2013; Varela etal., 2013; Maspaitella et al., 2017). Some case studies havebeen conducted for a particular region (Sahara and

Wicaksena, 2013; Khaeron et al., 2016; Irawanti et al., 2017);

however, none has been conducted recently to estimate thestatus of value-added sago that could make sago products
attractive for high-value market opportunities. To date, there
is no empirical evidence of whether, and to what extent,

added value and price transmission can be considered to beefficient for different actors in the sago industry. Thissituation indicates the need for analyzing the role played bymarkets in South Sulawesi, especially for small-scale sago
industries.

This paper targets these gaps through identifying thenature of sago production of each small-scale sago

industry and analyzing a wide range of issues pertaining

to value chains of sago products. In examining thisissue, we explain the methodology in Section 2, andM. A. Trisia et al.

2then in Section 3, we briefly highlight the key

geography. North Luwu Regency is one of the largest

Conclusion, we consider the wider implications of ourbusiness in the eastern part of Indonesia.

distinctive characteristics of actors. In Section 4, we
focus on the sago value chain in South Sulawesi. In theanalysis. This case study involves only two locations

with a limited number of respondents. However, thisstudy is essential as a baseline for understanding thevalue chain of small-scale sago industries in Indonesia.
2. Methodology

A small survey with a limited number of

respondents was conducted in February 2018 in North
Luwu Regency and Makassar City (Figure 1).

Research locations were defined based on spatialsago-producing areas in South Sulawesi. Meanwhile,
Makassar City is a central location of the sago

In this study, 25 interviews were completed amongsago owners, sago farmers, dange producers, driedsago producer, middlemen, and retailers (Table 1).

Purposive sampling was used as a tool for informant
selection in this case study. For example, only one
respondent was a dried sago producer because driedsago is not a common product in South Sulawesi. In
fact, the respondent was chosen because the driedsago product is the first local product that can befound in a majority of souvenir shops and modern
markets (convenient stores and mini markets). In

addition, the selected middlemen and retailers are thebiggest actors who have extensive networks for sago
distribution in South Sulawesi.

Sago market performance was tested in this study

using value chain analysis, which provides valuable
information regarding factors influencing actor
performance. The value chain approach was
Fig 1. Map of research locations

developed by Michael Porter in the 1980s (Porter,1985). At each stage in a market chain, the productchanges hands through chain actors, and costs are

Table 1. Definitions of important terms and numbers of respondents

A Value Chain Analysis of Small-Scale Sago Industries: A Case Study of South Sulawesi, Indonesia

3

incurred at each transaction. Generally, some forms ofmobilization and effort. Women in the sago businessstrategic planning, and it aims to maximize value

result is confirmed by Sudarman et al. (2010) andvalue are added (Louw et al., 2008). The value chain
framework is used as a powerful analytical tool for
creation while minimizing costs (Mumbeya, 2011).

Based on the data collected, we calculated the added
value of sago using Hayami’s method (Hayami et al.,1987).

3. The distinctive characteristics of sago palm
distribution in South Sulawesi

The major actors in sago starch distribution studied

in South Sulawesi are sago palm owners, sago
farmers, dange producers, a dried sago producer,

middlemen, and retailers in either traditional ormodern markets. Table 2 shows the number of

respondents interviewed in each category of thewere involved only in the dange industry and as

middlemen and retailers in traditional markets. This

FAO (2011), who found that being a seller does not
require intense energy levels, provides flexible
working hours, and, hence, are suitable for women.

However, this finding is in contrast with those of

MeMurrian and Rhey (2001) and Puspitawati (2013),
who found that females are perceived to be lessknowledgeable about selling products than are males.

In terms of age, 12% of total respondents were in

the age group of 26 to 35 years, 48% were 36 to 45

years old, and 40% were older than 45. Specifically,
the main group of respondents for the sago owner,

sago farmer, and dried sago producer categories were
those older than 45 years. Meanwhile, the majority of

Table 2. Characteristics of respondents

process with a summary of the characteristics of the

respondents, including age, gender, level of formal
education, and work experience.

The gender category of respondents revealed thatthe sago owners, sago farmers, and dried sago
producer were all males (100%). This finding

supports the empirical evidence of previous studies

that sago work is done by men (Hermin, 2007;

Metaragakusuma et al., 2017; Trisia et al., 2017). Thisis because extracting sago starch requires highrespondents from the dange producer, middlemen,

and retailer categories were between 36 and 45 years
old. In fact, most of the respondents were of a matureworking age.

Most respondents had reached elementary schoollevel. The highest level of formal education of the

respondents was university level, which was the driedsago producer. The low formal education level of alarge portion of the respondents may be due to thestatus of the sago business as an informal activity that

M. A. Trisia et al.

4does not require any special skill. The data also

14–15 days for one sago palm trunk.

dange and dried sago producers tended to have lessand rasping is done using engine-powered rasps. The

revealed that sago owners and sago farmers havework experience of more than 25 years, whereas thework experiences (5–15 years). This finding was dueto the lower popularity of dried sago products anddange. Middlemen and retailers tended to have morework experiences (more than 15 years). We assume
the middlemen and retailers who have more work
experiences will have more chances to extend theirsago distribution networks. In addition, extensive

experience is necessary to develop the skills needed tojudge the quality of sago starch to buy.
3.1 Sago farmers

In South Sulawesi, a sago farmer is calledpa`sampe, and the process of sago extraction is calledma`nokok sagu. Local people call their workshops

pabrik sagu (sago factory), even if they have only arasping machine. Our previous research, in 2016,

showed that sago farmers in North Luwu were divided
into three types based on their technology adoption:(1) technology transition from traditional to small-scale, (2) small-scale technology, and (3) semi-mechanized technology. However, in 2018, the semi-mechanized factory (type 3) was subsequently closed
down due to overcapacity. A former worker at thefactory said that it was difficult to get more than 10
sago trunks (10 sago trees) a day in North Luwu.

Types 1 and 2 sago farmers are different in terms ofworkers, practices, and profit sharing between sagoowners and machine owners. Type 1 farming ispracticed by an individual, where sago palms are cut
down and processed in a small pond. After cutting atrunk with an ax, the split log is rasped by a raspingmachine. The rasped sago mash is put into a leaf
sheath of sago palm, and water is then added to it.

Finally, the sago mash is kneaded by hand, whichallows water carrying the starch to pass through asieve into a suitable container. After kneading, theremaining pith is discarded, and wet sago is ready to
be harvested (Figure 2). The whole process takes

For type 2 farming, sago production is practiced bythree workers. A chainsaw is used to cut sago trees,

rasped sago mash is then trampled by foot, with water

added from a water pump. Finally, water carrying the
starch is passed through sieves and channeled into a
container (Figure 3). It takes 15 days to process 10

trunks. Based on observation, type 2 sago farming

produces whiter starch as compared with type 1 sago
farming.

Profit sharing among a sago owner, machine

owner, and sago farmer is a popular method in North
Luwu. Calculating the profit sharing related to sago

starch production allows us to determine the profit
margin accurately. In the profit-sharing agreement,

the sago owner normally provides the sago trunk,

while the sago machine owner supplies equipment

and gets a share of the profit. For type 1 farming, thesago owner also has a rasping machine, so, the profit
is one-third of the gross profit plus the cost of thesago trunk. Meanwhile, the sago farmer gets twothirds of the gross profit. On the other hand, type 2

farming has two different methods related to profit
sharing among the sago owner, machine owner, andsago farmers (three workers). The first profit sharing
method (A) has four parts. In this arrangement, after
subtracting the production cost and material cost fromthe revenue, the gross profit is divided into four parts.
Therefore, the machine owner and each sago farmer

receive one-quarter. The second profit-sharing method(B) has five parts. In this method, after subtracting thematerial cost from the revenue for the sago owner, thegross profit is divided into five parts. The machine

owner gets one-fifth, and the remainder (four-fifths) isthen divided by a total of three workers. Therefore,

each sago farmer receives four-fifteenths of the profit.
Based on our interviews, sago farmers can get more
profit with method B than method A. A comparisonof profit sharing between type 1 and 2 is shown in
Figure 4.

3.2 Dange producers

A Value Chain Analysis of Small-Scale Sago Industries: A Case Study of South Sulawesi, Indonesia

Fig 2. Sago starch extraction by type 1 sago farmer:(a) Split log is rasped by rasping machine; (b) Sago mash is kneaded by hand;(c) Wet sago is ready to be harvested; (d) Final productFig 3. Sago starch extraction by type 2 sago farmers:(a) Split log is rasped by rasping machine; (b) Sago mash is trampled by foot with water added from a water pump;(c) Wet sago is ready to be harvested; (d) Final productFig 4. Comparison of profit sharing between type 1 and 2 sago farmers

5

M. A. Trisia et al.

6Dange, or roasted sago, is commonly found in

exist in the distribution process is to fill a gap

remove foreign objects. The dried sago is thenproduct to reaching the final consumer, the price ofSouth Sulawesi. To make dange, producers dry wet
sago in the sun and then put it through a sieve toinserted into a heated clay mold (Figure 5). In thelocal market, sago is sold by the pereng (1 pereng: 10

pieces of dange). To minimize production cost, dange
producers use sago bark to heat the clay mold.

Widjandi (1979) noted that dange has durability, highresistance to common damaging factors duringtransportation and storage, and is non-hygroscopic,

but swells quickly when dipped in liquid or abeverage.

3.3 Dried sago producer

As mentioned above, we found only one dried sago

producer respondent in South Sulawesi. Based oninterviews with sago farmers, we learned that they do
not want to produce dried sago because: (1) they

already get enough profit from selling wet sago and(2) production of dried sago requires much effort(drying, sieving, and packaging) but results in fewer
profits.

The quality of the dried sago product that we foundin the field is still far from an acceptable standard for

between the producers and retailers to bring the

product to consumers. In the process, from making thethe product is marked up to cover transportation,

storage, and profit. Based on our interviews,

middlemen in South Sulawesi collect wet sago fromlocal sago farmers and sell it to special retailers(Jembatan Baliase) and local markets (Figure 7).

4. Value chain mapping of sago starch in South
Sulawesi

Figure 8 summarizes the value chain mapping ofsago starch in South Sulawesi. A sago palm ownersells sago palm trees to types 1 and 2 sago farmers.

Wet sago is derived from production by type 1 sago
farmers, and they sell it directly to dange producers

and consumers around the village. Meanwhile, type 2
sago farmers sell starch to dange producers,
middlemen, and dried sago producer. Wet sagocollected by a middleman is then sold to a special

market in Jembatan Baliase, which is known as a sago
market where people from outside South Sulawesi
stop to buy wet sago.

The dange marketing chain starts with the wet sago

edible sago starch. The starch is yellowish white withproduced by sago farmers, which is subsequently

knowledge of acceptable standards for edible sago

several cases, dange producers sell their products

a distinctive odor, although the packaging is very

attractive. Moreover, the producer does not havebought by dange producers. Dange is then sold toretailers and, afterward, to consumers. However, instarch. Figure 6 shows a traditional method of dried

directly to consumers around the village. For dried

period of time. Afterward, the dried starch is passed

sold in modern markets (Alfa Midi and Misi

sago production. The drying process is done

traditionally by exposing wet sago to the sun for athrough a sieve and then stored in a sack. The driedsago is sold in plastic packaging (750 grams) andmarketed to several modern markets within andbeyond South Sulawesi.

3.4 Middlemen and retailers

In the traditional distribution channel for sago

starch, middlemen and retailers have important
positions. One of the main reasons the middlemensago, the chain starts with the sago farmer, where a
producer obtains wet sago, and the product is thenPasaraya), souvenir shops, and outside South
Sulawesi, including Surabaya, Southeast Sulawesi,
and Jakarta.

4.1 Average added value of wet sago in South Sulawesi
The average added value for each commodity

handled in wet sago production was calculated using

Hayami’s method (Table 3). The table shows that theoutput of the product is wet sago. The monthly

A Value Chain Analysis of Small-Scale Sago Industries: A Case Study of South Sulawesi, Indonesia

Fig 5. Dange production process: (a) Wet sago is dried in the sun; (b) Dried sago is passed through a sieve;(c) A clay mold is heated; (d) Dried sago is inserted into a heated clay mold; (e) The product is finishedFig 6. Traditional method of dried sago production: (a) Wet sago is dried in the sun; (b) Dried sago is passed through asieve; (c) Dried sago is ready to be stored in a sack; (d) Packaging process; (e) The product is finishedFig 7. (a) Sago market in Jembatan Baliase; (b) Middlemen sell sago in the local market

Fig 8. A value chain map of sago products in South Sulawesi

7

M. A. Trisia et al.

8

Table 3. Average added value of the wet sago chain (Rp/kg, 1 US$=Rp 13,755)

production costs incurred by sago farmers can behigher profits by selling wet sago in the smallest sizedmachine rental. Meanwhile, for middlemen and

0.3, and for type 2 (A and B) it is 0.24, which results

divided into the main input material, which is sago

trees, and other inputs, such as diesel/gasoline andretailers, transportation and packaging are the main

expenses. It should be noted that the chain could be

handled by one person who acts as a middleman andretailer, which influences the amount of added value
generated by such a person that occurs in the
distribution of wet sago.

To calculate the input material, the results ofresearch by Yamamoto et al. (2016) are used, inwhich one sago tree is converted to 985.5 kg. The

tumang rather than the bigger ones.

The conversion factor for type 1 sago farmers isin the value of wet sago produced from 1 kg of sago
tree being about Rp 548 (type 1), Rp 552 (type 2A),
and Rp 584 (type 2B). Meanwhile, the conversion

factor for middlemen and retailers is 1, which resultsin the value of output for wet sago being about Rp

3,333/big tumang. However, the value of output for

wet sago is notably higher for a medium tumang (Rp6,364) and a small tumang (Rp 6,667).

The added value for wet sago is calculated byprice of a sago tree varies from Rp 150,000 to Rp

subtracting the cost of the sago tree, diesel/gasoline,from type 2 at Rp 2,300/kg–2,400/kg, due to the(37.7%) for type 1, Rp 264/kg (47.7%) for type 2A,

200,000. The price of wet sago from sago farmer type
1 is Rp 1,800/kg, which is relatively lower than that

quality of the starch. At the end of the chain, the wet
sago is sold either by middlemen in local markets orto the special market (Jembatan Baliase). Middlemensell the wet sago for Rp 50,000 by big tumang, whichcontains around 15 kg of wet sago. At Jembatan
Baliase, retailers sell wet sago in three sizes oftumang: big (15 kg, Rp 50,000), medium (5.5 kg, Rp

35,000), and small (1.5 kg, Rp 10,000). Based on ourinterviews with retailers, we found that they earn

and machine rental from the value of the output. The
result showed the added value amounts to Rp 206/kg
and Rp 303 (51.9%) for type 2B, whereas the added
value amounts to Rp 816/kg (24.5%) for middlemen

and Rp 300/kg (9%) for retailers. Assuming that all
big tumang are divided into medium and small

tumang, the added value amounts to Rp 3000/kg(47.1%) and Rp 3,167/kg (48%), respectively. This

result confirms retailers’ belief that the smaller thetumang, the bigger the profit.

4.2 Average added value of dange in South Sulawesi

A Value Chain Analysis of Small-Scale Sago Industries: A Case Study of South Sulawesi, Indonesia

9

Table 4. Average added value of the dange chain (Rp/kg, 1 US$=Rp 13,755)

The production cost of processing of dange using

wet sago from type 2 farmers, is Rp 1,778 (35.6%).

farmers. However, in the field, there are special cases

not need to pay for transportation and storage. The

Hayami’s method is summarized in Table 4. Dange

producers mostly purchase wet sago from type 2 sago
in which the producers buy wet sago from type 1
farmers. In this situation, the producer can use only

50% of type 1 starch because of its color and then mix
it with starch from type 2.

As mentioned in Section 4.1, the output of productfor sago farmers is wet sago, and the main input issago trees. Meanwhile, the output for dange producers
is dange, and the main input is wet sago that is

Meanwhile, the added value for retailers is Rp 3,283(39.4%), which is remarkably high because retailers dosurvey also indicated that there were no explicit or

implicit contracts between retailers and dange
producers. Retailers coordinate price offers, and dange
producers do not know the price at which retailers resell
their product to consumers.

4.3 Average added value of dried sago in South Sulawesi

The production structures for the processing ofpurchased from sago farmers. For retailers, the output

dried sago are summarized in Table 5. The dried sago

pieces of dange). Dange is then sold by the producer

Sulawesi. The product output of sago farmers is wet

and input of the product are dange. Based on ourinterviews, 1 kg of wet sago is equal to 5 pereng (50for around Rp 1,000/pereng to retailers. Retailers at

the local market then sell dange at Rp 1,667/pereng toconsumers.

The conversion factors for sago farmer types 1 and 2(A and B) as shown in Table 3 are 0.3 and 0.24,

respectively. The conversion factor for dange producers

and retailers is 1, which results in the value of output for

dange being about Rp 5,000/kg. In addition, the added

value for dange producers who use wet sago from type1 sago farmers is Rp 1,456/kg (29.1%) and, for using

marketing chain in South Sulawesi involves retailers,such as modern markets and those outside Southsago, and the main input is sago trees. Meanwhile, fordried sago producer, the output is dried sago, and themain input is wet sago. For retailers, the output andthe input of the product are dried sago.

A dried sago product is sold for around Rp

7,650/pack (1 pack is 750 grams) by the producer.

The conversion factor for dried sago producer is 0.7,
which results in the value of dried starch produced

from 1 kg of sago tree being about Rp 7,140/kg.

Meanwhile, the conversion factor for retailers is 1,

M. A. Trisia et al.

10

Table 5. Average added value of the dried sago chain (Rp/kg, 1 US$=Rp 13,755)

which results in the value of dried sago being about

farmers’ belief that wet sago is more profitable. Because

value for retailers is highest, with a value of Rp

intervention targeted at improving the sago starch

Rp 14,500/pack at modern markets and Rp
15,000/pack at souvenir shops. Indeed, the added

9,133/kg (47.2%), for modern markets and Rp
9,800/kg (49%) for souvenir shops. In addition, thenet margin is Rp 3,384/kg for sago farmers, Rp

9,005/kg for modern markets, and Rp 9,600/kg forsouvenir shops. Based on our interview with the driedsago producer, there was an explicit contract between
the retailer and the producer. The producer andretailers also openly discuss and coordinate priceoffers together. In contrast to dange producers, theproducer knows the price at which retailers resell theirproduct to consumers.
5. Conclusion

This study revealed that dried sago production is

the most profitable and has the highest significant

value-adding process as compared with the productionof wet sago and dange. This finding contradicts sago

sago starch forms a major part of the household diet andlivelihood for most households in the selected villages,
processing sector is likely to have a significant effect onvillagers. We recommend that sago farmers use good
manufacturing practices (GMP) to produce sago starchwith higher quality. In addition, developing a refining

sector is necessary to increase smallholder productivity

and income. Future research is needed to focus on arefining sector model and marketing system to help
smallholders seize opportunities for commercializationand income diversification from sago processing.
Acknowledgment

This work was supported by JSPS KAKEN Grant

Numbers JP15H05145, JP18KT0041.
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