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In this chapter, we will discuss the background of Malaysia market for sago. The discussion of the market consists of production, consumption, export and price. To understand about sago, we will first briefly discuss on sago palm, sago starch and sago processing.
Sago palm or Metroxylon sagu is a crop that produces starch for food and non-food processing industries. Sago palm is widely cultivated in Sarawak with more than 60,000 hectare of area recently. Commercial cultivation area for sago palm was increased from 43 hectare in 1988 to 10,700 hectare in 1996 and the remaining was cultivated by smallholders. In year 2000, there are 21 sago processing plants which produced around 60,000 tonne of sago starch. In west Malaysia, sago palm cultivation is too small with only 2 sago processing plant operated in Johor.
1.2 Sago Starch
Most of sago starch that been produced in Sarawak is used in west Malaysia (almost 30,000 tonne). Sago also been exported as high quality food grade starch and low quality industry grade starch. Export for food grade starch was increased from 3,600 tonne in 1985 to 11,000 tonne in 1995 while export for industry grade starch was decreased from 8,400 tonne in 1985 to 5,100 tonne in 1995. The major destinations for sago starch export are Japan, Singapore, United Kingdom, Taiwan, Canada, South Korea, New Zealand and Thailand.
1.3 Sago Processing
Sago palm took 10 to 15 years to be matured. When sago palm is matured, it will be felt down so that its trunk can be cut. Sago palm has a huge trunk, upright, reaches a height of 10-12 meters, with the contents of the soft and contain a high starch content. It is a staple food source for indigenous people in Sabah and Sarawak, including ethnic Bisaya, and Melanau.
Sago trunk is cut into section with each section is 75 cm to 90 cm long. This section is known as sago log. Every sago trunk yield around 10 to 12 sago log. Then, these sago logs will be tied together in the form of rafts and tugged by boats to sago processing plant through river. Sometimes, these sago logs are carried by lorry to sago processing plant.
Processing Sago Starch
Processing of sago starch is done in the sago processing plant. In the sago extraction process, the sago logs are first debarked, followed by maceration using a rasper. Newer types of raspers have eliminated the need for debarking. The sago chips resulting from the maceration process are then further disintegrated using a hammer mill. The starch slurry is then passed through a series of centrifugal sieves to remove the coarse fibres. Cyclone separators are then used to extract the starch which is then dried using a rotary vacuum drum drier, followed by hot air drying.
1.4 Malaysia Market for Sago
Food Grade Starch
Industry Grade Starch
Table 1.4: Export Quantity, Value and Price for Sago Starch from 1993 to 2003
From table 1.4, we can see how the development and the status of sago industries in Malaysia were. The number figure shows inconsistency in the export of sago starch every single year. Thus, it is influenced by the current economic climate.
We can see that the figure of the total export of sago starch are not really consistence compared to its price which is going high all the way starting from the year of 1993 until it reaches its highest price in the year 1998. The year after, the figure shows that the price is going down. Even though, the total of production was increased in 2002 and 2003. The lowest price ever was in year 1993 where it was only around RM584 per tonne for industry grade starch and RM596 per tonne for food grade starch. The highest price was RM915 per tonne for industry grade starch and RM 897 food grade starch in the year 1998; a year after the economic erosion occurs.
From the view of total export quantity and production, Malaysia produced the highest quantity of sago starch back in the year 1995 where it reaches its highest possible production with exported quantity up to 45,130.96 tonne for food grade starch and 4,816.43 tonne for industry grade starch. The lowest total production was in the year 1997 where only 27,285.50 tonne of food grade starch and 5,121.83 tonne of industry grade starch were exported; the same year when the economic erosion occurs.
If referred to the net export value, the biggest amount is during the sago price recorded its highest price which is in year 1998. The amount is RM5,638,142. Meanwhile, the lowest export value was in year 1993 with the net total of export value is RM2,314,787.
CHAPTER 2: CURRENT POLICIES DESCRIPTION
This chapter will discuss the agricultural policies relevant to sago; providing an accurate, clear understanding of the policies affecting the market for sago and its product. There are 4 policies that relevant to sago consist of policies by the Malaysia government (federal) and Sarawak government (state).
2.1 Sarawak Policy on Sago Plantation (Before NAP3)
The Sarawak government is trying to pioneer the cultivation of sago on a plantation scale, trying to tap 20th century agricultural technology and large-scale organisational structure to grow this supposedly wonder crop. The aim of sago plantations is the application of modern, scientific agricultural technology and a large-scale institutional organisation, to exploit the cultivation of sago that has thus far been cultivated in a very primitive and semi-wild fashion.
This is the first attempt at growing sago on a plantation scale anywhere in the world. Since the clone material and plantation technology for sago palm have not been established by private entrepreneurs, Sarawak government had developed the policies to cultivate sago palm on a plantation scale. With proper drainage, maintenance and fertilizer in plantation, sago palm will mature faster. This will increase the productivity of sago palm which supply starch to the local and international market.
2.2 Third National Agricultural Policy (NAP3) on Sago (1998-2010)
In NAP3, sago is fallen under the group of new product and future industries. The policy objective for this group is:
To develop innovative products and new industries which will provide source for the development of agriculture in the future
The strategies for this policy are:
To strengthen the economy base
To generate and encourage private sector participation
To reduce cost and increased productivity, commercial sago cultivation in large scale by private sector has been encouraged. This has been done alone by private sector and in collaboration with government subsidiaries. Infrastructures and basic facilities have been provided by the government to support the production of sago by private sector. Furthermore, cultivation with high quality seeds and better agronomy practices has been done to increase the productivity of sago smallholders.
Sago cultivation has been encouraged on peat soil area in Sarawak due to the suitable of this crop with peat soil. This is the best way to use peat soil area in natured way. Production of value-added sago based products have been implemented to wider the market opportunities. The products include modified sago starch, sorbitol, dextrin and ascorbic acid.
Research and development on both upstream and downstream activities for sago has been strengthen. The activities include:
Breeding high quality crops material
New products development
Usage of side products including wasted materials and sago scraps
Sago smallholders have been encouraged to wider their farm through institution support. Research and market encouragement for sago starch and other sago products have been stressed due to strengthen the existing market and venture the new market. Sago processing plants have been encouraged to practice quality control management. Investment and strategic raw material gain for upstream industry has been encouraged. This is to sustain the supply of sago in the industry. To control the wasted materials and sago scraps, pollution control management has been implemented.
2.3 Sarawak Policy on Sago (Based on NAP3)
Sarawak Policy on Sago has been formulated, planned and developed from NAP3 by Ministry of Modernisation of Agriculture Sarawak (MoMA). The policy is for sago starch-based product industry as a potential industry and sago as a crop industry.
For sago starch-based product industry as a potential industry, the policy objective is:
To explore new frontier industry which might have substantial return to the local producers and the economy
The strategies for this policy are:
To encourage private sector participation
To intensify research and development on sago starch product development
For sago as a crop industry, the policy objective is:
To develop and expand sago industry and exploit the opportunities of market of sago and sago starch-based products
The strategies for this policy are:
To assist smallholder in planting sago using mini estate approach
To encourage private sector participation in planting and processing of sago
2.4 Ninth Malaysia Plan; Policy on Sago
Under the Ninth Malaysia Plan, sago is one of the crops that included in land consolidation and rehabilitation. Land consolidation and rehabilitation will be continued on a larger scale to accelerate the modernisation of smallholdings as well as increase productivity of the crops.
CHAPTER 3: POLICY ANALYSIS
In this chapter, we will analyze the effects of policy that have been discussed in the previous chapter. The policy that we will analyze here is the Sarawak Policy on Sago based on NAP3.
3.1 Effects on Sago Cultivation Area
According to Chew, Abu Hassan Isa and Mohd. Ghazali Mohayidin (1999), the aim of sago plantations is the application of modern, scientific agricultural technology and a large-scale institutional organisation, to exploit the cultivation of sago that has thus far been cultivated in a very primitive and semi-wild fashion. With commercial planting on large scale have been encouraged through the policies, the sago cultivation area was increased. The estimated area for sago cultivation in 1998 is 45,000 ha and it increased to 60,700 ha in 2000 (Third National Agricultural Policy, 1998)
Since year 2000, the estimated area for sago cultivation in Sarawak is over 60,000 ha and slowly increased from year to year. The increment of sago cultivation area in Sarawak from year 2000 to 2004 is shown as below (Ministry of Modernisation of Agriculture Sarawak, 2005).
% compared to other crops
Table 3.1: Estimated Area for Sago Cultivation
Even though the area for sago cultivation is increased in term of hectares, but in term of percentage compared to other crops, sago cultivation is decreased. The policies might be effective to increase the area of sago cultivation, but the increment is rather too slow compared to other crops especially oil palm.
Figure 3.1.1: Sago Cultivation Area in Sarawak
Figure 3.1.2: Percentage of Sago Cultivation Area Compared
to Other Crops in Sarawak
3.2 Effects on Sago Starch Export and Starch Import
The highest sago starch export was in 1998 with 46,518.43 tonne of sago starch was exported and the value of it was RM41,855,722 with price per tonne is RM897 for food grade starch and RM915 for industry grade starch (Craun Research Sdn Bhd, 2004). After 1998, the sago starch export decreased making the worst export value was in year 2000 with only 36,382.78 tonne was exported and the value of it was RM29,782,916 with price per tonne is RM830 for food grade starch and RM766 for industry grade starch. This might be derived from the price drop of starch in world market.
The effects of the policies were only been seen after year 2000 where the export value of sago starch increased every year starting from year 2001 to 2004. Only in year 2003, the export value was decreased by RM55,000. The export value of sago starch from year 1998 to 2004 is shown as below (Ministry of Modernisation of Agriculture Sarawak, 2005).
Table 3.2.1: The Export Value of Sago Starch
While exporting sago starch, Malaysia still has to import other starch due to local consumption. In year 1997, estimated total production of sago starch in Malaysia is 60,000 tonne with almost 30,000 was used for local consumption (Third National Agricultural Policy, 1998). In 1998, the import value of starch was RM552,000 made it was the highest import value for starch.
With local demand for starch is good for food and non-food industries, the policies were able to support the supply of starch in local market. It helps to reduce the import value of starch in 1999 to RM55,000. From this year, the import value of starch per year was going up and down where in year 2000 there is no starch was imported. The import value of starch from year 1998 to 2004 is shown as below (Ministry of Modernisation of Agriculture Sarawak, 2005).
Table 3.2.2: The Import Value of Starch
Figure 3.2: Export Value of Sago Starch and Import Value
of Starch from 1998 to 2004
3.3 Effect on Sago Research Involvement
According to Chew, Abu Hassan Isa and Mohd. Ghazali Mohayidin (1999), there was no private group and only two government centres carrying out research on sago in Malaysia. Researches on sago are important to avoid the extinction of sago industry in Malaysia.
When the policies were implemented, Land Custody and Development Authority of Sarawak (PELITA) have formed Craun Research Sdn Bhd to carry out research and development on sago. Craun Research Sdn Bhd was once lead by former Sarawak MARDI Director, Mr. Yusup Bin Sobeng.
The policies also encouraged local universities to carry out research on sago. With UPM already carry out researches on sago before the policies; UNIMAS have joined them to do more researches on sago. Recently on 4 August 2006, UNIMAS signed an MOU with New Century Fermentation Research Co. Ltd. (NECFER) of Fukoka to enable both institutions to cooperate and collaborate in the establishment of the fermentation parameters and structural set-up in a joint research and development endeavour on sago starch fermentation for large-scale production of ethanol and lactic acid.
3.4 Effects on Private Sector Involvement in Sago Plantation
Presently, sago is grown in Sarawak as a smallholder's crop (Chew, Abu Hassan Isa and Mohd. Ghazali Mohayidin, 1999). When Land Custody and Development Authority of Sarawak (PELITA) started the development of two sago plantations; Dalat Sago Plantation and Mukah Sago Plantation, several private companies in Sarawak got the initiative to involve in sago industry. With the policy encouraged private sector participation in planting and processing of sago, the numbers of private companies involve in sago plantation and processing had increase.
Now, private companies which involve in sago industry have their own association for the benefits of members in the industry. Sarawak Sago Manufacturers' Association is the well known sago companies association in Sarawak. It is joined by:
Nee Seng Ngeng & Sons Sago Industries Sdn Bhd
Nitsei Sago Industries Sdn Bhd
Song Ngeng Sago Industries (EM) Sdn Bhd
C. L. Nee Sago Industries Sdn Bhd
Grand Safeways (S) Sdn Bhd
Igan Sago Industries Sdn Bhd
3.5 Effects on Traditional Sago Starch Production
Before the policy was introduced, there were 11 modern sago processing plants in Sarawak which had fixed assets and equipment valued around RM2-RM5 million (Chew, Abu Hassan Isa and Mohd. Ghazali Mohayidin, 1999). The policy helps to increase this number to 21 modern sago processing plant in year 2000. The increasing number of modern sago processing plant had slowly replaced the production of traditional sago starch called "lemantak" with high quality, dry sago flour.
3.6 Effects on Sago Starch Contribution in World Starch Market
In the world market, sago starch has to compete with other starch such as maize starch, potato starch, cassava starch and wheat starch. According to ISO Technical Committees (2005), the world starch output was estimated to be 48.5 million tons in year 2000. Below is the total export value (in USD) for starches in world market based on type of starches between years 2000 to 2002 (ISO Technical Committees, 2005).
Table 3.6: Export Value (USD) for Starches in World Market
Other starch in table 3.6 refers to barley starch, rice starch, sago starch and waxy xaize starch. Though the export value of other starch is decreased from year 2000 to 2002, it was only 5% reduction compared to 82% reduction of cassava starch. However, the percentage or reduction for other starch including sago starch is higher than wheat starch, maize starch and potato starch.
The policy to develop and expand sago industry in Malaysia helps to make Malaysia been acknowledged as one of the main exporter for starch in the world market. Malaysia also been acknowledged as the highest sago starch exporter in the world (ISO Technical Committees, 2005).
CHAPTER 4: POLICY IMPLICATIONS
This chapter will discuss the positive and negative aspects of the policies analyzed in the previous chapter. The discussion demonstrates a close relationship between the analysis in the previous chapter and the implications drawn in this chapter about the positive and negative aspects of the policies analyzed.
4.1 Positive Aspects
First positive aspect, the policies implicate the sago cultivation to be increased. With 1.69 million hectares of peat soil in Sarawak, the policies had increased the sago cultivation area. This was due to the encouragement of private sector participation in sago plantation and the assistant of smallholder in planting sago using mini estate approach. Private sectors will not just focusing to oil palm plantation in term of the land usage in Sarawak. Even though sago is less profitable compared to oil palm, the policies which imply government support in sago cultivation helps to involve private sector in sago cultivation.
Second positive aspect, the policies implicate the export and import of starch in Malaysia. With current consumption of starch in Malaysia is estimated around 100,000 tonne per year, the policies help to increase the supply of starch for local consumption. More than half of sago starch is been exported because of its high value as food grade starch and industry grade starch. This is more profitable than using it for local consumption. However, the usage of sago starch for local consumption still can support the local demand where the import value of starch in Malaysia is far too small (below RM80,000 from year 2001) compared to the export value of sago starch.
Third positive aspect, the policies implicate the sago researches involvement in Malaysia. The policies help to increase the number of government subsidiaries and private group involvement in sago researches and development. The researches mostly focus on increasing its starch yield, reducing the gestation period of sago and reducing the cost of sago production.
Fourth positive aspect, the policies implicate the income of sago smallholders. With most of sago palm is cultivated by smallholders, the policies help to increase their income. Most of sago farmers are having income from non-sago agricultural activities or from off-farm employment. This is because sago palm has the gestation period of 10 to 15 years which considered as too long to generate income. The policies are focusing on economic strategies in planting sago at farm level where the farmers can maximize the profit in sago cultivation.
Fifth positive aspect, the policies implicate the collaboration between federal government and state government. With agriculture as the third instrument to generate Malaysia's economy, the policies play an important role in developing the "abundant crop" such as sago. The federal government creates policies to develop sago cultivation for the state government. Then the state government will innovatively formulate, plan and develop the policies to be implemented. The policies consist of budget and land for sago cultivation.
Finally, the policies ensured sago not to be abundant and will be developed to support the agriculture industry as well as other industries in Malaysia.
4.2 Negative Aspects
First negative aspect, the policies implicate the manipulation of private companies in sago industry. Most of private companies that involve in planting and processing sago have their own association to protect their importance in the industry. They might control the price of sago section (sago trunk which is cut to yield its starch) and the fee for transportation to factories. When this happened, the sago smallholders might gain small profit or even worst they gain loss.
Second negative aspect, the policies implicate the traditional value of sago processing. With the number of modern sago processing plant is increased, the traditional, small-scale cottage mills which produce a type of inferior wet sago called "lementak" for the local markets are slowly being wiped out. The Melanau community especially will slowly lose their traditional way in processing sago.
Finally, the policies are considered not very effective in developing sago industry. This can be seen in the small increment of sago cultivation area for the past 5 years.