SAGO PALM 28-2: 49−55 (2020)

From Producers to Consumers: An Analysis of Distribution Channels
and Added Value of Sago Products in East Java, Indonesia
Marlisa Ayu Trisia* and Hiroshi Ehara*International Center for Research and Education in Agriculture, Nagoya University,
Furo-cho, Chikusa-ku, Nagoya 464-8601, Japan*Corresponding author: trisiayu@agr.nagoya-u.ac.jp; ehara@agr.nagoya-u.ac.jp

Abstract: The distribution channel is vital in the sago business because it connects producers and consumers. In
this paper, we identify the distribution channels of sago products and their functional classification. We foundthat the distribution of sago products, such as dried sago and roasted sago (sagu kotak), in East Java is classified
as indirect distribution, which relies on intermediaries. Intermediaries such as distributors, wholesale agents, andretailers are primarily actors that directly coordinate buying, selling, storing, and distributing sago products from
Riau and Maluku to consumers in East Java. In addition, our calculation showed that sago pudding has a highly
profitable value-added process as compared to that of roasted sago.
Keywords: distribution channels, dried sago, intermediaries, roasted sago, sago pudding

Introduction
Sago palm (Metroxylon sagu Rottb.), a tropicalcrop containing a large amount of starch in its trunk,grows in latitudes 10 degrees north and south of theequator (Ehara et al., 2015). Recently, sago starch has
become an important raw material for utilization invarious food industries, and Indonesia is a leading
supplier. The starch is mainly produced bysmallholders. Therefore, sago is not only seen as afood but also a functional commodity with economic
value that helps reduce poverty. However, sago-basedindustries have stagnated due to the lack ofinterrelation between upstream and downstream
enterprises (Taridala et al., 2013).
It is well recognized that distribution channels
contribute to the achievement of business goals. In
sago-based industries, understanding the distribution
channel helps improve the relationship between
upstream and downstream and maximizes profit.
Several studies have explained that the distribution

channel is the mechanism or pathway by which a
product or service is made available for the use of or
consumption by customers (Coughlan et al., 2006;
Stone & Macarthur, 1984; Szopa & Pękała, 2012).
Distribution channels represent networks between
producers and consumers, including various
intermediaries such as wholesalers and retailers(Anđelković et al., 2017). The role of distribution
channels is to bridge the gap between producers andconsumers by adding value to products or services(Kim & Frazier, 1996) and to overcome the gap
between the places of production and consumption bycreating time, place, and possession utilities(Anđelković et al., 2017).
As a distribution channel is a network of different
entities with many partners, it must operate in an
integrated way to maximize profit. However, to date,there is no empirical evidence of distribution channels
and price transmission in sago-based industries. Thissituation indicates a need to investigate theM. A. Trisia and H. Ehara

50

importance of distribution channels in the sago supply

consumers. The role of the various actors in the

chain, especially in East Java, which is the mainmarketing system is examined, and finally, data on

market destination. In the next section, we cover the

prices in the various distribution channels aredata source and methodology of our study. The

analyzed to estimate marketing margins at each level.

characteristics of the distribution channels for several

In addition, Hayami’s method is used to calculate thesago products are later presented and discussed,

added value received by the sago pudding seller

followed by our conclusion and suggestions.

(Hayami et al., 1987).

Methodology

Results and Discussion

Our survey was conducted in January 2019 in

1. Sago products in East Java

Surabaya, the capital city of East Java, Indonesia

Java Island, especially East Java, is considered the(Figure 1). Three traditional markets (Pabean,

main market for sago starch, where it is mainly used asa food ingredient. Dried sago and roasted
sago are commonly found in the traditional
markets of Surabaya. We also found sago

pudding, a popular dessert made from

roasted sago (Figure 2). Dried sago starchis produced by drying wet sago under thesun to reduce the water content to 12–15%(Yamamoto et al., 2015), while roasted
sago is made by putting wet sago into aheated clay mold for 15–20 minutes

Fig 1. Map of the research location(Metaragakusuma et al., 2016). This result

Wonokromo, and Blauran) and adessert shop were observed to identify
sago starch utilization and distribution
channels. Purposive sampling was used
as a tool for informant selection in thiscase study. For example, the selecteddistribution agent (1 respondent),
wholesalers (2 respondents), and







Fig 2. Sago products found in Surabaya, East Java: a. dried sago, b. sagu
kotak/roasted sago, and c. sago pudding/bubur sagu made withsagu kotak and coconut milk 
           
  

retailers (4 respondents) are the biggest
actors with extensive networks for sago distribution inin a reliable product with high durability during

East Java. In addition, 1 respondent for sago pudding

transportation and high resistance to spoilage caused byis the proprietor of the company with the largest sago

molds and insects during storage (Wijandi, 1980). In

dessert shop chain in Surabaya. Data were thenIndonesia, roasted sago is called by different names incollected through questionnaire-based interviews anddifferent places, such as sagu kotak, sagu lempeng, or

field observation.

sagu ambon. In this paper, we use the term “sagoMarketing margin analysis was used to identify the

kotak,” as it is commonly called in East Java.

distribution channels by tracing the movement of the

As seen in Figure 3, dried sago is produced in Selat

dried sago and roasted sago from producers to

Panjang, Riau, and then it is distributed to East Java

From Producers to Consumers

51
distribution system is indirect, thesago business relies on intermediaries

to function effectively. Typically,



intermediaries such as wholesalers
and retailers are perceived to be key

actors in the distribution channel
(Coughlan et al., 2006). A number of      
  

intermediaries are important in the       

Fig 3. Geographical flow of sago products from Riau and Maluku to East Java

distribution channels because they
determine the length of the chain

from Cirebon. Based on the data from Cirebon Port,the demand for dried sago from 2014 to 2018 in Java
Island remained stable with an average of 80,041
tons/year. Meanwhile, roasted sago is distributed

from producers to final customers(Szopa & Pękała, 2012). The dried sago distribution
channel from sago farmers in Riau to consumers inEast Java can be seen in Figure 4.

mainly from Maluku. However, sincesago is not considered a maincommodity in Maluku, data related toshipping from Maluku to Surabaya is
not available, which makes it 

   

 

challenging to trace sagu kotak 
   
   

the distribution channel of sagu kotak
when it arrives in East Java.

 

Sago pudding, called bubur sagu in
East Java, is a famous dessert in Eastboiling sagu kotak with water and     
  

trading. Therefore, we only focus on

Java. Sago pudding is made by



       
Fig 4.
Distribution
channel of dried sago from Riau to East Javasugar; it is served with coconut milk.
It is sometimes added to otheringredients such as black glutinous rice, sweet potato,
and mung bean and called bubur campur (mixed
pudding). Local people believe that sago pudding
relieves fever and sore throat. Based on our interview,
we learned that demand for sago pudding increases
greatly for holy days such as Ramadhan and Eid alFitr, resulting in higher demand for sago kotak.
2. Dried sago distribution channel
According to our investigation, the distribution ofdried sago can be classified as indirect distribution
with market linkages from producers in Riau todomestic traders in Cirebon and East Java. Since the

Dried sago from Riau is shipped to Java Island
through Cirebon and redistributed to wholesaler
agents and retailers in East Java. It may take 4–5 days
from Riau to Cirebon by ship, and then it is kept
temporally in port storage. Meanwhile, it takes twodays to redistribute dried sago from Cirebon to
Surabaya by trucks, where it is sold by wholesaler
agents and retailed at the local market (Figure 5).
According to the wholesaler agent at Pabean
Market, their product-selling capacity is 12.5
tons/month. The relationship between distributors in
Cirebon and Surabaya is based on mutual trust, andthe order is completed by phone without any explicitM. A. Trisia and H. Ehara

52

payment flow is generally on a cash basis,and the information flow is related to
production capacity, price, shipping status,and sales data. The movement of
information is crucial because it helps to
support supply chain activities. In addition,the transparency of the distributor's delivery 
       
 sago isin
 Port’s
 storage  facilities;
Fig 5. a. Dried
kept
Cirebonb. dried sago is sold together with tapioca starch at thewholesaler agent in the local market of Surabaya

contract. They also had the opportunity to purchasedried sago from Lampung. However, they were notinterested, because they believe the quality of driedsago from Riau is better, and they have worked out
the logistics and established a relationship of trust.
Meanwhile, retailers could sell between 50 and 200
kg of dried sago at the local markets. According toretailers, the distributor agent always checks theavailable stock of dried sago and delivers it as soon as
the purchase order is made.
Dried sago starch is sold by a cooperative at a priceof Rp 5,050/kg to the distributors in Cirebon (Pratama
et al., 2018). The distributors in Cirebon then sell thedried sago at a price of Rp 6,000/kg. In East Java, thewholesale agent sells dried sago at Rp 7,600/kg.
Meanwhile, at the retail level, dried sago is sold for
Rp 10,000/kg to consumers. Due to the long chain
between a producer and consumers, the price of driedsago is hiked more than 98% from the cooperative in
Riau until it reaches consumers in East Java without
any extra value addition. This happens due to a long
distribution chain that covers transportation, storage,
and profit for distributors and retailers. Furthermore,

system is also essential for the sago starch toreach consumers in East Java.
Based on marketing margin analysis(Table 1), retailers get the highest marketing

margins among all actors involved. The retailers'marketing margin is Rp 2,400/kg (24%), while thecooperative receives the lowest, just Rp 50/kg (1%).
Our study also revealed that there is weight loss
during the shipment due to the loss of moisture
content. The dried sago in Surabaya weighs only 90–
98% of its original weight. The wholesaler agent also
said that the price of dried sago is higher than that oftapioca starch, which is Rp 6,000/kg. However, theprice of dried sago is likely to remain stable ascompared to the price of tapioca, which fluctuates
greatly. They also consider that dried sago has betterlong-term durability than tapioca and wheat flour.
Although the price of dried sago does not fluctuate
like that of tapioca starch, the long chain leads to higher
prices for consumers in East Java. In fact, the sago
supply chain is heavily influenced by the availability of
infrastructure such as roads, ports, and transportation
networks. Our interview with transportation agents in
Cirebon indicated that bad weather and unreliableinfrastructure can hinder the distribution of dried sagotransported by sea. Those might impede delivery andcreate storage problems, which affects the quality of

Table 1. Marketing margin of dried sago intermediaries (Rp/kg, 1 US$=Rp 14,447)

From Producers to Consumers






   



 53

 

  


Fig 6. Sagu kotak distribution from Ambon to East Javasago starch. Increased prices are also unavoidable
because distributors must pay handling andtransportation costs, bear the risk of physicalWholesalers also predict that the price of sagu kotak
is likely to increase in the future due to strong demand.
Since distributor information in Ambon was notdeterioration of the product, and make a profit.

available, we excluded the calculation for distributors

3. Sagu kotak distribution channel

Our result showed that the marketing margin of thein Surabaya and focused on wholesalers and retailers.

As shown in Figure 6, the sagu kotak supply chain
is also considered an indirect distribution fromAmbon to East Java. Shipping from Maluku to thePort of Tanjung Perak, Surabaya, takes one week; it isthen transported to distributors’ warehouses by truck.
The distributors then sell the product to wholesalers
and retailers.
At the distributor level in Surabaya, sagu kotak issold for Rp 1,395,000 (Rp 15,500/kg) per sack (90kg), on average. The wholesalers then store sagu
kotak in their warehouses and sell it for an average of
Rp 17,250/kg. At the retailer level, the average selling
price of sagu kotak is Rp 21,000/kg. Unlike distributors
and wholesalers where sagu kotak is sold in bulk,
sagu kotak is sold in small quantities at the retail

retailer is Rp 3,750/kg (18%), while the wholesaler
receives a margin of Rp 1,750/kg (10%) (Table 2).
Cash payments are commonly used for transactions,and the information flow in the upstream sector isrelated to the price, delivery status, and order
quantity. The information flow is important,especially in terms of delivery volume. Retailers
provide feedback to wholesalers during seasons ofanticipated high demand, such as during the holydays, so that a higher supply is available. According
to wholesalers, the color and size of sagu kotak are
not uniform, which sometimes makes it difficult tosell. We assume that this is because there is no control
mechanism to ensure the quality of sagu kotak due toreliance on traditional production methods.

level. The process of coordination between the
distributor–wholesaler and the wholesaler–retailer isrelatively good, making the supply and demand
process smooth. According to wholesalers, distributor
agents always check the available stock of sagu kotak
and deliver it as soon as the purchase order is made.

4. Sago pudding (bubur sagu) distribution channel
and added value analysis
Sago pudding distribution can be classified as
direct selling. Through direct selling, producers can
avoid intermediaries in the supply chain and sell

Table
2. Marketing margin of sagu kotak intermediaries in East Java (Rp/kg, 1 US$=Rp 14,447)
Intermediaries

Cost

Selling priceMarginM(%)

Wholesaler

15,500





10%

Retailer

21,000

18%

M. A. Trisia and H. Ehara

54
    

Fig 7. Distribution of sago pudding in Surabaya, East Java, Indonesia

products directly to consumers. As seen in Figure 7,

addition, e-commerce also gives them more profit due

the producer buys sagu kotak from the retailer in theto high exposure, easy access to consumers, andlocal market and sells sago pudding directly tocompetitive price due to low distribution costs.

consumers. In addition, sago pudding is sold online

The added value of sago pudding was also

through several e-commerce apps. E-commerce iscalculated in this study. The processing of sagu kotak

very popular now because it satisfies the needs of

can increase its value by producing better taste and abusy individuals living in the city to order food andmore attractive appearance. It also helps the producer

receive delivery within a few minutes (Zulkarnain et

to get more income. The added value for sagoal., 2015). The tremendous pressure to shorten thepudding was calculated using Hayami’s method

distribution channel while increasing its effectiveness(Table 3). The result showed that the value of outputs

and efficiency incentivizes producers to utilize e-(sago pudding) produced monthly by the dessert shopcommerce because it eliminates boundaries andis 455 kg/month (1,300 portions) with input raw

geographic restrictions and creates communicationmaterial from sagu kotak of 78 kg and labor of 416

paths among supply chain actors (Hsu, 2017). It also

hour. Based on the comparison of the final productchanges traditional shopping patterns, especially forand labor with the raw material, we obtained

information gathering, transaction, buying processes,

conversion factors of 5.8 and 5.3, respectively. In

and consumer logistics, which strengthens the core

addition, the added value for sago pudding is Rp

business (Seitz, 2013). According to our interview,

55,128,667 (90.9%) with net profit of Rp 47,640,667

the sago pudding producer is more likely to use online(86.4%). This shows that sago pudding has aorder and payment systems with their customers

remarkably high added value, providing significant

because of the flexibility and responsiveness. In

income and profit.

Table 3. Added value of sago pudding/month (1 US$=Rp 14,447)

From Producers to Consumers

Conclusion
This study revealed that the distribution channels ofdried sago and sagu kotak are indirect, relying on
intermediaries to perform most functions and fill thegap between producers and consumers. Meanwhile,
sago pudding is distributed by direct selling, withadditional sales through e-commerce. Sago pudding
also has the highest significant value-adding process,as compared to sagu kotak. Based on these
conclusions, we make several suggestions, as follows:i) a direct marketing strategy and short supply chain
can be used to reduce cost and promote sago products
while avoiding high marketing costs due to extended
distribution channels, ii) since poor transport
infrastructure is a significant barrier for distribution
channels, options such as investing in road
construction and logistic facilities should be exploredby the government to improve the logistical
performances, and iii) product development withhigher added value can be a strategy for producers to
obtain higher income, open up untapped markets, andacquire a more favorable market position.

55

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