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Selling Substrate
Substrate is a business too
In the Netherlands, the Agaricus industry is dependent on substrate providers who incubate then transport and fill substrate at various farms. Very few growers in the Netherlands still produce their own substrate. There are many reasons for this. The biggest is probably that producing substrate requires big investments in specialized equipment and puts pressure on both the available space and facilities of a farm.

Only the largest Agaricus growers have a high enough tonnage to justify making all of their substrate at this point. Button mushrooms are too cheap, the margins are slim, and it’s harder to defend paying huge sums of money for specialized machinery lines when good, incubated substrate is inexpensive and readily available. This is also simply much easier for the owner of the farm, especially family-owned businesses. Buying substrate is one less thing to think about, and considerably simplifies the on-site work flow.

There are also examples of this in Japan's mushroom industry. Nakano City dominates the enoki industry and also grows a substantial amount of shimeji (beech mushrooms) through the use of centralized incubation centers that handle the bottling and spawn run and then ship substrate to neighboring farms. Some of the largest companies in the Japanese mushroom industry are producing shiitake blocks along with other, incubated blocks for sale to small growers.

But who supplies the incubation centers and those producing incubated substrate blocks? Or supplies large farms? Specialized sawdust producers provide substrate for one portion of the market. Shiitake, maitake, nameko and wood ear are grown with a primarily sawdust-based substrate, with nutrition supplements such as wheat bran and rice bran, and pH stabilizers such as calcium carbonate.

The bulk of the market, however, uses non-sawdust substrate. Enoki, eryngii (king oyster), and shimeji, are grown using corncob as a primary substrate. In addition to corncob, there are a number of other ingredients and each spawn variety for each species has very different formulas. Soybean hulls, dried soy bean pulp (tofu lees), dried beer lees (great for maitake), cottonseed hulls, bagasse, rejected paper pulp, sugar beet pulp, cacao pulp, ground oyster shells (for calcium carbonate) or calcium hydroxide_emdash_ the range of substrate mixes is fascinating and complex. Nutrition supplement mixes for sawdust substrate use the same materials but in different proportions.

It is easy to overlook how ultimately small the mushroom industry’s agricultural niche is. Mushrooms are, in fact, the most recent and most technologically advanced of all humanity’s agricultural domestication. The efficient, mass-production of exotic mushroom varieties in indoor, climate-controlled facilities is little over 50 years old, and some, such as eryngii, are less than 30 years old. Agaricus varieties are similar, with mass production only really beginning in the 1940s and 1950s.

The EU as a single entity is the second largest wheat producer in the world after China and produces over 140 million tons of wheat straw waste every single year. Just in the Netherlands, over one million tons of wheat straw waste is produced a year. The entirety of the Netherlands produces around 230~260 thousand tons of mushrooms a year, which, doing rough math for manure, water, and all the other components that go into substrate, I can very generally estimate that even the Netherlands, famous for its high per capita mushroom production, is using less than 10% of domestic wheat straw waste_emdash_assuming the country is using purely Dutch wheat-straw, which I doubt the industry is.

What I’m getting at is that even a big mushroom farm is a small outfit in comparison to the scale of other economic forces in the agricultural industry at large. More specifically, only a few giant players in the industry can be said to be operating at economies of scale. Generally speaking, if you are making 30 tons of substrate a day, a facility with bigger and more efficient equipment that is making 100 tons of substrate a day, will make substrate cheaper than you. In Japan, even large incubation centers have done the math, and determine that depreciation costs, labor costs, and the need for additional land and facilities outweigh the slight premium of paying for already mixed substrate, packaged into easy-to-use pallets.
In Japan, what this means is that the mushroom industry supports many other suppliers and vendors and the economic impact on rural Japan is much bigger than just the sale of mushrooms indicates. The value of the mushroom industry lies in how many different local waste-streams it can be integrated into, producing low-cost food. The economic development is cycled several times over in the local economy, from truckers shipping substrate to substrate producers, to mushroom farms and back to truckers and then to regional supermarket chains or wholesalers.

As a result, I’ve been interested for a while in seeing the very beginning of the supply chain for mushroom production in Japan. I was even a little curious, because with how tight the margins are in the Japanese mushroom industry_emdash_especially for varieties not cultivated with sawdust_emdash_I still wondered what justified paying a premium to buy substrate from a specialized provider rather than just buy what you need and mix it on location. After all, this is what the mid-sized and up shiitake and maitake farms I have been to all do.

A Trip to Shimizu Mills
One of the oldest, (and one of only two surviving substrate vendors in Nagano Prefecture), Shimizu Mills is an indiscrete factory. The facilities, located in the southern end of Nagano City, stand out amongst the old, traditional style Japanese houses and apple orchards of the surrounding neighborhood. Shimizu Mills has a nearly 100-year long history, beginning as a rice miller, before eventually moving into the production of substrate (as the company’s owner also moved into enoki production in a separate business).

I visited Shimizu Mills in early July, on a hot day in Nagano City, with temperatures of 35 degrees Celsius and the typical high humidity of the Nagano Basin. We started the interview with a quick walkthrough of the facilities. For safety reasons, I had to put on a hard hat, and we were also wearing masks. It would have been better had I used an N95 mask and had goggles.

The cavernous facility begins with the stores of different substrate materials. The corncob, which is the core component, already comes palletized from China and Indonesia primarily. Cottonseed hulls, Shimizu Mills purchases from domestic textile companies, but the cotton itself comes from all over the world. Wheat bran is also purchased from domestic flour millers, whose wheat comes from a number of countries. The rice bran is all domestic, with several truckloads arriving every day from the Tokyo area.

The sheer variety of components, all with different origins really drove home the scale of Shimizu Mills’ operations. I also quickly saw how handling all these different orders and having to calculate the required quantities of so many different components could burden even a large incubation center, especially when the production varies slightly from week to week. However, Mr. Atsushi Sato, the CEO of Shimizu Mills, explained that even more so than the logistics, the reason why companies find it economical to purchase substrate is because of the time and space cost in mixing substrate on location.
Essentially, the farms have to have workers putting each of these ingredients into the ribbon mixer in the properly measured ratios. By using a premixed substrate, all farms have to do is use forklifts to pour pallets into the ribbon mixers, and add water while mixing the substrate until the proper moisture content has been achieved. There’s also no need to unload and store multiple different ingredients on site. This saves time, space, and labor, the latter an especially big issue for farms struggling to find workers.

After walking through the storehouse, we came to the heart of Shimizu Mills’ operation: the mixing and palletizing line. Several large machine lines run nearly continuously, precisely weighing out different ingredients from central funnels on the conveyer system and then cycling everything and palletizing the resulting mixture. The pallets are then transferred to a docking area, where workers use a heavy concrete disk to pack down lower pallets before stacking the next level, and from there ship to farms.

The central facilities where the weighing and mixing take place are relatively new; Shimizu Mills only updated them in 2020. Previously the company was using different ribbon mixers much like a mushroom farm and mixing in everything bit by bit, but this system was simply too inefficient and they were having ever-growing struggles to supply customers. The new system loads large quantities of each material into silos, and then weighs and mixes based on automated settings, allowing fewer workers to oversee the system.
I could instantly understand why the company has a hard time maintaining a labor force. Because the fine particulate matter would quickly clog up a filter system and mess up the A/C system (and also, I suspect, because the cooling costs for such a large building would eat most of the narrow profit margins the industry can support), the building is not airconditioned. The heat was definitely a challenge, with the temperature inside no different than outside (if not worse). With a hard hat on and mask, plus protective work clothing on, this is a sweltering work environment, equivalent to a low temperature sauna.

There are some fans that try to maintain a breeze, but that also serves to make the dust problem worse. Being inside is like walking around a dust storm, only of even finer small particulates. In minutes my camera was coated. My non-N95 mask, with a loose fit around the nose from having used it the day before, soon had powdered rice bran, corncob and other manner of particulates on the inside as well. This is hard work, which means the system has to be efficient to keep running.
The mixing process, including the proportions of each material, are controlled through a touchscreen panel in a side room that overlooks the facility behind glass windows. The company uses 24 different materials in its blends, which makes for a lot of combinations to keep track of. Each customer has their own stated preferences for their substrate blend. After viewing the control panels, we passed through the loading dock and then back to the company’s offices.

Interviewing Shimizu Mills CEO, Atsushi Sato
After I sat back down in the company’s office, I had a much clearer idea of why large incubation centers would still choose to purchase substrate from a specialized provider. Mr. Sato even explained, shortly after sitting down, that the company has a wide variety of connections to different industries, and can create new test substrates for clients to use in their facilities, and generally scale up production of formulas that prove advantageous.

I enjoyed a can of cool green tea as we talked about the history of the company. Shimizu Mills in its current form was incorporated in 1950 during the reconstruction period following World War II. The company initially focused on milling rice for regional consumption. They would purchase brown rice, mill it, sell the polished rice to distributors, and then sell the rice bran as chicken feed. In that period many people in the region raised chickens on their land. Shimizu Mills even had a system where they would provide the feed free of charge, in exchange for a certain number of mature chickens exchanged to the company each year.
The company then expanded to specializing in food storage, and entered the mushroom industry first as a processor of enoki, which they cut and then sold to nametake (a sweet soy braised enoki condiment, detailed in the March edition of the journal) producers. The company didn’t begin making substrate until 1974. Currently, the company mainly sells substrate for mushroom farming, but still, in line with its roots, processes a small portion of locally grown rice for regional wholesale. Shimizu Mills also, in fitting with its location next to the mountains of northern and western Nagano Prefecture, serves as a wholesaler of wild mountain vegetables such a bamboo shoots and fiddlehead ferns. In addition, the company continues as well to sell small amounts of animal feeds.

Mr. Sato has been with the company for 17 years now, 16 of them serving as CEO. The company has a total of 32 employees, which makes it a tight-knit operation, with, again, very deep roots in the surrounding community. Shimizu Mills has committed to a concrete set of sustainable development goals up to 2030, including reducing energy costs per sales unit by 10%, getting 20% of their energy use through renewable sources, and increasing the average yield of their substrate mixes by 5%.

Aside from the standard Q&A materials covering the company’s goals, history, business model and so on, we discussed the challenges facing the industry at length. During the mushroom industry’s booming years, there were four or five other substrate wholesalers in Nagano Prefecture, but now only two remain. The milling industry in general has taken a beating; Mr. Sato noted that there is only one rice mill left in the prefecture for sake, despite Nagano Prefecture being one of the major producers of sake in Japan.

Japan, much like many other developed western countries, has seen a slow draining away of various local production facilities and regional industry away from the countryside wherever possible and instead concentrating it heavily in a select few hubs. The cost of these gains in efficiency are the local economic networks of large swaths of Japan, which in turn threatens to undermine the very infrastructure that secures the country’s domestic food supply. That was my sense from talking to Mt. Sato, whose face belied the market pressures the company is swimming against.
Armchair quarterbacking is very easy. I can very easily talk about the potential of other local agricultural waste streams in Japan as a way to reduce corncob imports and improve quality. The devil is in the details, though. The grape and apple pomace from the region’s large fruit production are an interesting product on paper, but the question is how to commercially dry, powder, store and ship these resources. Mr. Sato noted that he is interested in these alternatives too, but it’s been difficult and slow work actually implementing practical ways to use them.

Shimizu Mills has helped support a Nagano-based initiative to put abandoned farmland_emdash_increasingly a problem in an aging industry without people willing to succeed their parents_emdash_back into use with sorghum. Sorghum is a very drought resistant, hardy plant that doesn’t require a lot of labor, fertilizer, or pesticides to produce decent yields, and in turn, Shimizu Mills deals in some of the sorghum bran/flour for the mushroom industry and is also working to integrate sorghum straw as a substrate medium. Hearing this gave me a deeper appreciation for how local companies can be attentive to the issues of their communities and the long-term vision of Shimizu Mills, which sees the need for cooperation and joint efforts to keep local agricultural networks afloat.

Shimizu Mills is also running tests using bamboo as a substrate. Bamboo, as anyone who has ever made the mistake of planting it outside as an ornamental plant knows, is a monstrous weed. Bamboo grows wild, and also grows rapidly on otherwise poor, mountainous soils, making it an abundant but not very useful resource in Japan. Finding the right formula to use bamboo as a mushroom substrate, would be a huge boon for both Shimizu Mills and the mushroom industry. Bamboo is a cheap and renewable forestry resource and if the industry could use it, nearly all mushrooms would be produced by domestic substrate.

I was reminded of the old saying “adversity breeds innovation”, and I think there is a silver lining to the low prices and fierce competition in the mushroom industry here. The challenges of the industry in Japan have and continue to create effective methods to improve yields, reduce costs. What’s unique about Japan is that growers work with high consumer demands for quality, but low prices and little room for gourmet or specialty versions.
Simply put, no one is going to pay 400 yen (roughly 4 USD in real purchasing power), for a 300-gram cluster of enoki at the supermarket. No matter how special it is, whether you slap an “organic label” on it or not, Japanese consumers will snort and say “that’s more than enoki should cost” and reach for the 250 yen cluster of the same size. That’s simply how the consumer market works here. But what that means is that growers haven’t been able to throw away quality in appearance, texture, taste, shelf life and so on, just to cut costs.

I think Shimizu Mills offers an interesting bit of insight into some of the infrastructure that comes into play for scaling up exotic mushroom farming. Agaricus growers have a good deal of this infrastructure, but exotic mushroom farmers don’t and that’s a major barrier to economical expansion in new markets like North America and the EU. Japan is such a rich source of information and a good model for the industry because the industry here has innovated to maximize yields and consistency and minimize inputs on all fronts, all without undermining the quality of the product.

Like it or not, the future of the market for local producers in the EU and North America, is going to resemble the current Agaricus industry. Cheap imports from Asia (particularly China, which is already doing this) will supply needs for canned, processed, dried and other lower-quality products, while the local industry is largely based on the sale of fresh quality mushrooms to the local market and premium food brands. Therefore, Japan really is the model to study as a case study of how to grow quality mushrooms with very consistent yields and low costs, because like with Agaricus, the margins will eventually become quite narrow for exotic mushrooms as well. Shimizu Mills is one example of the specialized infrastructure needed for this, as well as how mushrooms are a great economic multiplier that support many other businesses and recycle agricultural waste products through what could also be called efficient vertical farms.

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Selling Substrate

Substrate is a business too