By Joel Severinghaus, International Trade Analyst, Iowa Farm Bureau Federation, JSeveringhaus@ifbf.org.
Reviewed April 2014.
Azuki (ah-ZOO-kee) bean popsicles are not going to catch on in Greene County, Iowa. But that is okay with the azuki bean farmers of the Greene Bean Project, as long as their beans remain a popular dessert ingredient in Japan. This small group of central Iowa farmers has diversified beyond corn and soybeans to several varieties of dry edible beans, seeking greater profits in niche markets with alternative crops. It is a long way from Greene County to azuki bean popsicles in a Tokyo convenience store freezer case, and these farmers’ experience is a case study on the challenges of pursuing niche markets overseas.
The Greene Bean Project began with an exasperated small-town banker. Tired of hearing local farmers complain about the low returns on soybeans, he asked his customers, “Well, why don’t you grow something else?” Several Greene County farmers came together with a steering committee in 2000, working with Iowa State University Extension and the Agricultural Marketing Resource Center to investigate higher-value alternative crops that could be grown using farmers’ existing equipment. 2001 was their first growing season, with twenty-four farmers experimenting with about 450 acres of black beans, garbanzo beans and azuki beans. They planted that first crop without knowing where they would sell it but found bean brokers in Nebraska and Michigan who bought their entire production for good prices.
In 2003, the farmers incorporated as Greene Bean Project Alternative Crop Enterprises of Iowa, LLC. There are now 25 farmers producing beans on about 1,000 of their farm acres: black beans, azuki, cranberry beans, black and brown soybeans for soymilk, non-GMO high-protein soybeans, mung beans for bean sprouts and edamame green vegetable soybeans. Farmers in other parts of Iowa also wanted dry edible bean production contracts, so the Greene Bean Product has expanded beyond Greene County to thirteen other counties. A “Value-Added Market Development Grant” from the USDA helped them with market research and business planning, and an export market development grant from the Iowa Farm Bureau is helping them explore direct export sales. Their Michigan broker has been shipping the Greene Bean Project’s entire azuki harvests to Japan, but the Iowa farmers would like to expand their options by dealing directly with Japanese buyers.
Azuki beans were the focus of a market research trip to Japan by two of the Greene Bean Project farmers in July 2003. Azuki (Vigna angularis) are small red beans (roughly the size and shape of Tic-Tac mints) used in East Asian foods, primarily in Japan. Most of the world’s azuki production is in Japan and China, but the United States has grown some for export in traditional dry bean farming states such as Michigan, Idaho and Washington. Japanese farmers produce azuki on small plots using riding lawnmower-sized machinery or even hand cultivation, weeding and harvesting, but the Greene Bean Project farmers use their conventional soybean planters and combines for azuki with only minor modifications.
Azuki Bean Uses
Japanese cuisine has traditionally used beans for dessert, not as a side dish or soup ingredient. Azuki is the most popular bean for Japanese confectionery, but baby lima beans and some varieties of kidney beans and white beans are also cooked with sugar for various sweet dishes. More than 90 percent of the azuki beans grown in or imported into Japan are processed into "an," a sweet bean paste that is about one-third azuki, one-third sugar and one-third water. It is similar to peanut butter, which is also a sweetened pureé of legumes used in sandwiches, candy and desserts. Like peanut butter, "an" also comes in smooth and chunky varieties, with textures ranging from thick applesauce to something like baked beans. A Japanese "an" processor describes "an" as “Asian chocolate,” because it plays much the same role that chocolate does in Western confectionery. "An" is a popular filling for snack buns, cakes, steamed dumplings and doughnuts. Sandwiched between two silver-dollar pancakes, it makes the dorayaki snack cake. Along with sticky rice, "an" is the main ingredient in traditional Japanese wagashi sweets for the tea ceremony. Thickened with agar-agar seaweed gelatin, "an" paste becomes blocks of fudge-like yokan. "An" has new uses in frozen desserts, as a topping for shaved ice snowcones and as flavoring in ice cream and frozen yogurt. A typical 7-Eleven store in Japan might carry a dozen different "an" or azuki bean products, including azuki popsicles.
Japanese demand for azuki beans exceeds domestic supply. Japan’s total azuki consumption is about 100,000 metric ton (MT) per year, while domestic production averages about 70,000 MT. The remaining 30,000 MT of azuki are imported, 90 percent of them from China and 10 percent from the United States, Canada, Australia and Argentina. One would expect competition from cheaper imported azuki to bring down the domestic price but that is not the case – domestic Japanese azuki costs about $4,000/MT, compared to $400 to $500/MT for Chinese azuki and $700 to $800/MT for U.S. azuki. Several factors contribute to this disparity in prices.
Import Quota System
The Japanese farmers who grow azuki on Japan’s northern island Hokkaido protect their livelihood with obvious political clout. The Hokkaido farmers’ cooperative Hokuren handles about 60 percent of domestic azuki production. Their lobbying has paid off with a quota system for azuki imports that guarantees markets and high prices for domestic beans.
Azuki imports were originally limited with an import quota, an annual cap on the volume of azuki that could be brought into Japan. The market was very volatile under the import quota system, and azuki beans were the most-traded commodity on the Tokyo Grain Exchange ten years ago, as importers and an processors tried to hedge azuki price risks. In 1995, azuki beans imports switched to a tariff-rate quota system, and the Japanese government agreed in the World Trade Organization negotiations to give 120,000 MT/year market access for dry edible beans. That 120,000 MT quota includes four classes of dry beans: azuki, kidney beans, broad beans and peas.
The Japanese government allocates dry bean import quotas in April and October, limiting the tonnage that can be imported. As a Japanese azuki importer explained, the government policy is to protect the Hokkaido farmers, so most of the azuki quota is issued in the second half of the year, after the Hokkaido azuki harvest volume is determined. The azuki import quota volume is adjusted to make up only the difference between Hokkaido production and market demand. Within the azuki quota of about 30,000 MT, the import tariff rate is ten percent of the delivered price. Over the quota amount, the tariff jumps to 354 yen per kilogram, or about 500 to 600 percent duty – an effective disincentive to importing more than the quota tonnage.
Japanese importers must also pay the government 5 yen per kilogram (about $42 per MT) for quota shares. Only about eighty Japanese companies have azuki import quotas, and their percentage shares of the total quota are fixed, although the total quota tonnage varies every six months. Like many Japanese industries, the azuki import business is a relatively small club with few players, who all know each other’s quota allocations, prices and customers.
This import quota system certainly distorts the Japanese azuki market. Much of the economic distortion is to the benefit of Hokkaido azuki farmers. However, the quota system is also having some unintended consequences as importers and an processors try to find a way around it. There is no limiting quota for an imports, although an 18 percent tariff applies. That is higher than the 10 percent tariff on whole azuki beans, but an importers still come out ahead, because they avoid the even-higher import tariff on sugar they would use to manufacture "an" in Japan. The trade is shifting away from whole bean imports to quota-free processed beans: Japan imported 80,000 MT of processed "an" last year, compared to 30,000 MT of azuki beans.
Some of the largest Japanese "an" processors and trading companies have invested in joint-venture farms to raise azuki in China and are processing it there for export to Japan. Another loophole in the bean quota is that there is no quota for boiled, unsweetened azuki. Yamazaki Bakery, the country’s largest "an" user for its inexpensive pan buns, imports frozen parboiled azuki from China to make "an" in Japan. The trade barriers intended to protect Japanese farmers are instead moving more azuki growing and processing to China. This trend is not limited to azuki – China now supplies 60 percent of Japan’s processed food imports.
Intellectual property rights have become another factor in the azuki market. The Japan Seed Control Law gives patent rights to Japanese seed breeders and restricts imports of protected varieties. The widely-grown “erimo” variety of azuki is unregistered “public domain” seed, but the “kita-no-otome” and “shumari” varieties have patent protection. Such protected varieties have shown up in Chinese shipments of tebou white beans, with cargos impounded and fines levied against importers. To avoid that risk, Japanese importers have stopped buying Chinese tebou. This informal embargo may continue for several years. There are rumors that supplies of “erimo” azuki seed from Japan have been contaminated with “kita-no-otome” or “shumari” protected varieties, deliberately or not, requiring prudent North American farmers to do DNA testing before planting Japanese seed, lest their azuki be rejected at Japanese ports for patent violations.
Domestic is Better
Consumer preference has a strong influence on Japanese azuki market dynamics. Consumers everywhere tend to perceive local produce as fresher or better tasting than imported food. Japanese consumers are no different in their preference for Hokkaido azuki over imported beans from North America or China. Dry whole azuki beans sold in supermarkets prominently state “Hokkaido-grown” on their label, as do many "an" dessert products. High-end wagashi confectioners advertise that they use only domestic beans. North American farmers planting Japanese-origin azuki seed at the same latitude and climate as Hokkaido claim there are no qualitative differences between their beans, and that Japanese "an" processors probably blend some cheaper imported azuki with expensive Hokkaido beans, but the consumer preference for domestic prevails.
This consumer preference, along with the shift from azuki imports to processed "an" imports, leads to an inelastic demand for domestic azuki that ensures the entire Hokkaido crop will be sold almost regardless of price. In the meantime, the azuki quota’s market distortions have discounted the domestic price of imported beans. Azuki import quotas work on a “use it or lose it” basis, forcing quota holders to import their alloted tonnage every year, regardless of need or profitability, or lose their quota allocation next year. This has led to a surplus of imported azuki in Japanese warehouses, with Chinese azuki now trading for less than it cost to import. With increasing imports of processed "an", the total supply of azuki and "an" in Japan has almost doubled in the past few years, while demand remained unchanged.
New Azuki Products
Some azuki processors are trying to stay ahead of consumer food trends with new product development. Endo Seian Corporation is one of the largest "an" manufacturers, with factories in both Japan and China. Faced with declining demand for traditional Japanese sweets, Endo Seian has diversified into organic products, producing organic azuki on its own farms in China and importing organic sugar from Brazil and Paraguay. The discovery that azuki has many times the polyphenols found in red wine has repositioned azuki as a health food: Endo has rolled out an unsweetened organic azuki tea in single-serving cans with labels that tout the polyphenol health benefits. Endo is also introducing a line of microwaveable Western-style bean soups, trying to move beans beyond the traditional dessert category.
The Greene Bean Project farmers returned from their market research trip to Japan with trade leads, product samples and advice. They heard universal advice against trying to process azuki beans into "an" for export. They were told Iowa’s abundant high-fructose corn syrup would not work in place of cane sugar in "an." In the past, Japanese importers tried making "an" in North America and gave it up due to quality considerations. Iowa could not compete with China’s much lower production costs for commodity "an" either. Several importers suggested that the Greene Bean Project consider growing tebou white beans, now that China has been shut out of that market for seed patent violations.
The Iowa farmers also learned that their niche might be offering what Japanese azuki sellers cannot or will not. Hokkaido farmers, with their comfortable protected market, do not have an incentive to switch to organic production. In the aftermath of BSE and recent food safety scandals, traceability has become a buzzword in the Japanese food industry. Several azuki buyers said their customers are asking for traceability and information about farm chemical use, but the Hokuren cooperative and other azuki sellers cannot provide that. Domestic azuki supplies are aggregated from many small farms, without a system for identity preservation of particular lots of beans. If sellers cannot supply records of pesticide or herbicide use, azuki wholesalers might have to test for residues of all 63 chemicals approved for use on azuki beans in Japan. Testing for all these chemicals can cost more than $7,000.
Japanese importers were intrigued when the Greene Bean Project farmers explained that they use only four chemicals on Iowa azuki beans and at only half the recommended application rate. The Iowa farmers could easily supply chemical use records and even traceability back to particular fields. Unlike Japanese farmers, individual Iowa farmers have enough azuki acreage to fill a 20-foot shipping container with beans from just one farm. The Iowa farmers also have their own grain bins, with enough on-farm storage for identity preservation of a particular farm's harvest.
It's Not About the Beans
It is a truism that doing business with the Japanese is often more about relationships than the product itself. It can take years to cultivate a sale in Japan. One benefit of the Greene Bean Project’s meetings in Japan was confirmation that they already have a good business partner. They heard that their bean broker in Michigan, who has been exporting azuki for more than ten years, is well-known and well-respected in the Japanese trade. They also confirmed that he has given them good prices for their first two azuki harvests. The Iowa farmers might capture more profit by cutting out the middleman to export directly, but they would also have to learn international logistics and accept longer payment terms from foreign buyers. They learned there is value in a middleman's role and relationships. Rather than selling directly to Japan, they might save themselves the trouble and just continue exporting via the Michigan broker.
If they do decide to export on their own, the Greene Bean Project will not be able to compete with Chinese azuki on price. Nor are they likely to add value to their beans by processing them into "an" before export. Their competitive advantage may be more intangible. The added value in the Greene Bean Project’s azuki beans could be the information that comes with them: organic certification, chemical application records or traceability back to each farm. That was an unexpected lesson for the farmers, who tend to focus on the intrinsic qualities of the crops they raise: it may not be about the beans after all.
- Adzuki Bean, Alternative Field Crop Manual, University of Wisconsin and University of Minnesota, 1997.
- Azuki Beans, (Vigna angularis), Pulse Australia Limited.
- Bean, Adzuki - Phaseolus angularis, Institute of Food and Agricultural Sciences, University of Florida Extension, reviewed 2003.
- Kelley Bean Company, Scottsbluff, Nebraska - This family-owned company is one of the leading exporters of U.S.-grown dry beans.
- New Opportunities in Vigna, updated 2003.
- Plant Configuration and Population Effects on Yield of Azuki Bean in Washington State, updated 1997.
- Potential New Specialty Crops from Asia: Azuki Bean, Edamame Soybean, and Astragalus, updated 1997.
Profile created September 2003 and links checked April 2014.