Japanese soybean investment helps Ontario farmers access good Identity Preserved markets

by KEN BENNETT & DON STONEMAN

Bosveld is president of the new Agromart Processing Company Incorporated, located at Belton in western Ontario, between St. Marys and London, and he looks like he is ready for a test drive. As he circles the freshly painted surfaces of the new food-grade soybean processing plant, he knows that this is the missing piece of equipment that has kept the Agromart Group from accessing good Identify Preserved (IP) markets for farmers.

The plant also represents a significant investment by three Japanese companies who are paying half the total cost, which is in excess of $1 million. This substantial commitment to the Ontario soybean industry gives Agromart Processing direct access to the markets of Marubeni Corporation, Nisshin Oil Mills and Nisshin Logistics in Japan -- good news for area growers like Allan Payne.

Allan and his brother Neil operate a 1,700-acre dairy and mixed crop operation near Thamesford. Allan is responsible for the fieldwork in the operation, including their 200 acres of IP soybeans, and is very positive about the Japanese participation in marketing. It makes them more than just a buyer -- "they are putting down roots."

Given the effects of the summer drought on the province's soybean crop, that commitment will be reassuring to many farmers. The Japanese investors "are certainly quite understanding that we are going to face some challenges, based on this year's yields," Bosveld reports. "Being directly involved in the company certainly gives them a better feel for what's happening in Ontario."

For Allan Payne, the additional advantage is to be able to market through a local company with whom he has already been dealing for crop inputs. At Hutton Farm Supplies near Belton, Agronomy Company of Canada acts as head office for the Agromart Group, allowing a collection of small entrepreneurial, owner/manager companies to compete with larger corporations.

"The strength of our business is really the people we work with," says Don Smith, Agronomy's general manager. He describes the new processing company as a 50 per cent joint venture between 12 Agromarts and the three Japanese companies. "We're the new guys on the block and we're basically seeing that as a means to protect our crop input business. It's a service that the farmers are looking for and which make them more profitable. We want to be full service retail outlets."

That business model has already been proven by the success of Agromart Terminals Incorporated, which also operates at Belton and is 50 per cent owned by 14 of the Agromart joint ventures. The collective equity and financing produced an innovative fertilizer handling and storage facility to serve their needs.

Bosveld and plant manager Sandy Liddle want their Japanese investors to think of this plant as a showcase, approximating the standards of the food mills in Europe and Asia. Liddle points out that the investors are used to seeing lots of ceramic tiles, stainless steel and workers with hairnets. Coming into the IP marketplace as new players, they want the advantages of building an entire processing system, designed around the vision of a top quality product.

Finding the cold-tolerant bean
Now the president of First Line Seeds Limited in Guelph, Peter Hannam is considered by many to be a guru of the Ontario soybean industry. But roll the clock back to 1962.

At that time, soybeans were considered to be a hot season crop, better suited to the climate of a few southwestern counties, though not for Hannam's dairy operation on the outskirts of Guelph. But Hannam had seen some growing outside the crop science building at the University Guelph where he was about to receive an agricultural degree. When a professor told him it couldn't be done, Hannam took it as a challenge. The next season, on a tiny acreage, he found out for himself.

"It took eight years putting in five or 10 acres of beans before I found a way that was profitable," reflects Hannam. "I don't know why I ever persevered."

Hannam realized during his early experiments that he couldn't rely on the seeds and methods used in warmer climates and expect to see good performance of even commercial varieties on his farm. He worked closely with the University of Guelph to find a cold-tolerant bean, searching as far away as Sweden. In addition, there were no herbicides available because the predominant control method in the southwest was to scuffle 36-inch rows. Again, working with the university, he was able to come up with a herbicide program to control weeds. During that time, Guelph and the Ottawa Research Station were also starting to breed new varieties, making them available to the public. Soon, Hannam had doubled his yield from a paltry 12-15 bushels per acre to as much as 30.

During those early glimmers of success, Hannam claims there was no grand plan to become a major seed corporation. "I didn't start out and say, 'here's what I'm going to become.' It was just step by step."

When he bought out his father's side of the partnership, his first choice was to focus on the crop side. After developing a good corn/soybean/wheat/red clover rotation using zero tillage, he specialized in seed production. From there, the focus was on soybeans alone. This meant leaving other parts of the business behind, but it also gave space to move toward a premium market.

Hannam saw something unique and exotic about the soybean and eventually found others who thought so too. In the early 1980s, he was involved with the Canadian Seed Growers Association and met a dozen other seed growers across Ontario who shared his vision. In 1982, they joined forces and First Line Seeds Limited was born.

About the same time, the Ottawa Research Station had started breeding a special bean, unfamiliar to the palate of most North Americans. Maple Leaf Foods (then Canada Packers) wanted to include the small round natto bean in its exporting business to Japan. In the past, breeders in Ottawa traditionally released new varieties to the public, so any grower could get them. This was different. "They knew this was a specialized market and they were looking for somebody who had both a connection to the market and who could grow them well," says Hannam.

Maple Leaf Foods had the export connections through their office in Tokyo, while First Line had the expertise to grow, clean and package the beans. "We established a classic strategic alliance that we're still working with," says Hannam.

Getting out of what Hannam calls "the commodity cycle" is the clear benefit to finding proprietary markets. He believes farming was actually hampered by the plethora of public varieties available in the past and that growers walked a treadmill driven by freely available public research that continually devalued the marketplace. While the consumer has largely been the beneficiary of commodity pricing, the farmer has often been left wanting.

With IP, Hannam sees the farmer as part of a chain, integrally linked between proprietary research and the specialty consumer markets that are willing to pay more for the expertise. Maintaining that incremental value through every link in that chain ensures everyone benefits but particularly farmers. "That's one of our criteria in coming up with a new variety or a new product -- that there has to be some benefit to farmers," he says. Hannam believes in looking a decade ahead, rather than moving in one giant step. "It's just like a chess game. What move do I make now to ensure that this s a viable industry some time out in the future -- not just around Guelph, but nationally and internationally."

One of those moves has come to fruition. In 1993, it was not legal to breed the Round-Up Ready(r) gene into soybeans in Canada. Hannam believed that would change. By taking their best germ plasm to the United States, First Line was able to get a three-year jump on breeding and was prepared when the time was right to bring the seeds back. "Nobody else in Ontario was interested in doing that," he says.

That innovation gave them a huge lead in the Round-Up Ready(r) market, enabling them to offer the first varieties in Canada in 1997. It also made them an attractive partner for a large crop technology company, and in 1998 Monsanto bought a majority stake in First Line. Hannam says Monsanto values the local market connections of the dozen producers and employees who remain minority shareholders in joint ownership. "They are our eyes and ears out in the countryside and they know what's best in their area for soybean production," Hannam says. "We've got the most unusual seed company in the world."

So what is the 10-year vision now? "You'll probably see more opportunity for growth and innovation in the next 10 years than ever before," Hannam predicts. "I think there's a very strong future for the bio economy, growing specialized crops for specialized purposes." He believes the whole food and fibre industry will be opening to new uses, such as bio-diesel and ethanol fuels obtained from corn and soybean oils. He also sees food and pharmaceuticals derived from improving the proteins and their nutritional attributes. "We've got a long way to go in utilizing the protein of soybeans to its fullest extent," he says.

When First Line was first established, it was intended to be a seed company just like any other. But Hannam soon realized they could not rival the traditional grain companies, which already possessed the resources, expertise, connections and, in this case, access to germ plasm. "You've got to create a new market or a new category that nobody else is strong in," he says. "Nobody was a soybean company when we started."

Commitment worth nurturing
Next spring, Bob and Pat Andruchow will be tracing the path their Hyland bred soybeans take from their 900-acre farm in Blenheim to the miso-processing plants in Japan. Ultimately, they will go to the stores and meet the people who buy their end product. This innovative idea is one more indication that Japanese food processors are interested in a long-term relationship with IP producers, just as they are with their customers. "They are very particular about what they buy and they seem to be very concerned about their consumers," says Bob Andruchow. "The company we deal with seems very interested in tracing everything right from the farm to the consumer."

Andruchow thinks the end-to-end awareness his clients want is smart and that we will see more of it in the future. Rather than a focus on commodity and price, a gradual relationship is being crafted between the producer and the processor based on quality instead of quantity. Andruchow is now in his sixth season of growing 50-75 acres of this particular variety for the same Japanese company. He acknowledges that soybeans are difficult to grow, use his best fields and will probably never promise a large acreage contract. "Certainly it's not for everybody," he says. "For the amount of work or risk, though, the premium is about right. It fits into our way of farming."

This "way of farming" may say more about the way some producers form partnerships than it does about procedure. Farmers like the Andruchows demonstrate a level of commitment that Japanese companies like this one consider worth nurturing. Clearly, hospitality like this is as much about involvement as it is about reward.

John Cowan agrees. As manager of the Hyland Seed division of W.G. Thompson and Sons Ltd., he believes these delegations set up a long-term relationship that is a benefit to all. "I think every opportunity that a farmer gets to know his customer better, every opportunity he gets to understand what he can deliver that makes his customer more efficient is a benefit to the farmer in the long run," he says.

Cowan points out that Hyland was the original IP crop producer in Ontario, producing corn for the Kellogg plant in London back in 1977, the same year that Hyland began its soybean breeding program. Recently Hyland purchased Sycamore Creek Company, a modern soy food processing factory in Stockbridge, Mich., which processes Ontario produced soybeans for shipment all over North America.

Kim Cooper, marketing co-ordinator for the Ontario Soybean Growers in Chatham, knows that Japan is their biggest market for food-grade soybeans. Having been involved in organising delegations on both sides of the Pacific Ocean, as well as being a guest himself, he thinks personal contact is very important. "Farmers are highly esteemed in Japanese culture," he says.

One concession road away from the Andruchows, Bill and Norma Knight have also shared this experience. In her kitchen, Norma flips through a meticulously labelled photo album describing their six days of touring processing plants and grocery stores and experiencing Japanese hospitality and food. What they didn't expect was the commitment the Japanese food processors had to their customers. Bill says he noticed right away how careful and clean they are with the beans. "You understand more of what they are up against, when you see how particular they are," he says. The Knights agree they have developed an increased commitment to their customer as a result. And this commitment may bring an underlying premium - the security of a premium food supply for the Japanese and of a premium market for Ontario farmers. BF

Short on crop, long on commitment

Early reports of soybean yields were a portent of an apparent disaster. The summer drought sapped yields of both commodity crushing and IP varieties. There's no question about the commitment of the Japanese buyers with their investment at Belton, but what about other buyers of Ontario's identity-preserved soybean crop?

Hyland Seeds' John Cowan acknowledges that this year contracts will "come up short. We will have to work with our customers," he says. But, in the longer term, "we expect that they will come back. They understand that we are growing a crop which is subject to the vagaries of the weather."

Hyland and W.G. Thompson are the largest Ontario player in the Japanese market, says Cowan, and have a reputation for delivering a good quality product. "That's what a lot of this business is all about."

A similar view prevails at First Line Seeds in Guelph. Early harvests of soybeans for seed indicated that while yields were compromised, quality was not. "Maintaining quality standards is more important in the long run" than is the fact that supplies are short, says Hannam.

Market watchers think that the hammering the Ontario crop took this year because of poor weather may actually speed the shift from a commodity crop for crushing to an IP speciality.

"If, in fact the ability of the Brazilians (to produce commodity soybeans cheaply) is what we hear it is, and if the Americans insist on continuing with their stupid subsidies, IP is certainly an important way to go," says economist Larry Martin of the George Morris Centre in Guelph. With tiny Ontario unable to match the economies of scale in Brazil and Indiana, IP clearly makes sense, he says.

Breeding the specialty into soybeans

by KEN BENNETT

In just a moment, the vise-like action will resume and Jenkinson will watch a line on the nearby computer screen rise like a wave as the tofu resists the slow squeezing action of the device. The rate of ascent up the wave represents firmness and when the summit is reached, the tofu's hardness will be known. These attributes will determine if the soybean variety used to make it will bring a premium in an Asian market.

As he waits for his sample of soy food to be squashed to a fraction of its former height, Jenkinson may well be pondering how much time he has compressed to reach this point. It has taken six generations to get here from the first parent soybean cross and he already began narrowing his search for toothsome food properties two generations ago -- before there were enough beans to make even a morsel.

As a specialty soybean breeder for First Line, Jenkinson has a wealth of experience behind him in the ways of agronomic selection. Under normal circumstances, by the time the seeds have been bred for yield, maturity, lodging, size and colour, building in the additional requirements of food taste and texture is a truly formidable undertaking.

Generally speaking, the agronomic qualities of a certain bean are observable in a single plant. Food-making attributes, on the other hand, are usually observable only after multiplication of enough seed to process. Only after a geometrically larger pool has been assessed can a specialty seed be selected to improve the food quality for the consumer while maintaining quality field characteristics for the farmer. However, Jenkinson has an innovation that reduces this monumental trial and error search to an ordered and manageable task.

Though he has become an expert at cooking tofu, Jenkinson's recent Master of Science degree from the University of Guelph was in Plant Agriculture. In his thesis, he used electrophoresis to develop a selection/prediction tool to separate, analyze and quantify the amount of each fraction of protein present in a variety. Electrophoresis separates the proteins based on their differing rates of movement in a medium when electrically charged -- a kind of protein race in an electrical field. Once separated, the amount of each can be measured.

Knowing that an excellent quality tofu has more of one type of protein means a breeder can work backward and predict or increase quality by selecting for it. The bonus is that only a few beans are required for testing, kick-starting the selection process two full generations before there is enough seed to make tofu.

"If you can predict what that tofu is going to be like without the need for that 500 grams of seed, you've saved yourself time and made things more efficient as well," he says. Trimming years off of the breeding program provides an enviable competitive advantage. But there is still another benefit -- involvement of the customer in the selection process ahead of field scale production.

"There are dozens of different kinds of tofu products and each one requires a different protein component in the bean," says First Line Seeds' president, Peter Hannam. "We can provide different varieties for different kinds of tofu and identify that in a breeding line well before it gets to the market stage." This tailoring of proteins to affect desired product characteristics establishes a strong market linkage to the customer even before a crop is contracted out.

Jenkinson looks forward to a point when each specific variety will be thought of as a food ingredient, each with different attributes, and when an ingredient designed from his palette of qualities can be defined by the palate of each consumer.

Analysis of protein is the key. Jenkinson says soybean protein can be divided into two major fractions that can be categorized again into five more sub-units. Each of these 10 distinct parcels has its own physical properties that can be measured and, more importantly for consumers, can influence things like taste and texture. "When you make tofu with soybean protein, you are making it with all these different parts and, depending on all the relative amounts of each different part, the quality you get out in the end will be different," he says. BF

Understanding the new language of IP

by KEN BENNETT

Identity Preservation: "Varietal tracing from field to fork. It's preservation of variety all the way from seeding right through to end user." Brian Hall, OMAFRA.

Traceability: "Traceability is the ability to follow that crop all the way back to the seed origin. If I start with something other than certified seed, I really don't have a basis for a beginning." John Cowan, Manager, Hyland Seed Division, W.G. Thompson & Sons Ltd.

Auditing: Random inspection of the whole system to guarantee that quality and purity standards are being met. Greg Devries, Producer, Dresden.

Accountability: "The farmer, in general, has never talked to the food processor in the past. The farmer has to say, 'I'm growing this product for Nabisco', or 'I'm growing this product for whoever', and this is what that person requires." John Cowan.

Documentation: "Doing what you normally do, but writing it down." Greg Devries.

Premium: "This plan will only work if there is a value-added return to the producer. So often there is an assumption that this could all be done without some sort of additional return on the investment. We don't want folks in either the food industry or the variety development industry to think that this is business as usual, because it's not. We're dealing with really different stuff here." Randy Preater, Canadian Seed Growers Association.

Precision: "We're learning how to work with this concept and having to be very precise because we're allowed almost zero, or undetectable amounts, of GMO in our segregated varieties. The next step is to do the same with designer varieties that have been genetically modified to do a specific thing, and keep them separate as well." Harry Dick, President, Wheatley Elevators.

Segregation: "When you start looking across the range of grains, you start seeing selection by the end user in terms of specific varieties that best suit their end-use needs. If I want to supply that market, then I have to have a way of ensuring that the product they are looking for, I can get it in and keep it separate and make sure the customer is getting only that product." Jim Lowe, Regional Director, Bayport Region, Canada Grain Commission.

Market Niche: "When you look at the Ontario growing region and you look at the U.S. growing region and compare sizes, you think about the customer at the other end that's saying, 'I don't need much, but I just need to be assured.' Well, Ontario is the perfect target because it has the ability to segregate, the ability to be different from the big U.S. machine." Grant Craven, Vice-President, Production and Product Development, Pride Seeds.

Purity: "The new meaning is that instead of just being concerned about whether it's No.1 or No.3 quality corn that's going into the corn flakes, there is now some interest in whether a variety is definitely, for example, not genetically modified." Randy Preater, Canadian Seed Growers Association.

Designer Varieties: " I would think a large portion of the industry will steer towards designer varieties that may have various purposes from health benefits, to processing benefits, to benefits for the grower." Harry Dick, Wheatley Elevators. BF