The surprisingly innovative company revolutionizing Canada’s lentil trade

Regina-based AGT Food and Ingredients built a huge business trading in lentils—and now it’s chowing down on the rest of the value chain

 
Saskatchewan premier Brad Wall (at left) and then-prime minister Stephen Harper (at right) were on hand when AGT CEO Murad Al-Katib (centre) announced plans for a new pulse milling facility in Regina in 2011 (Roy Antal/CP)

Saskatchewan premier Brad Wall (at left) and then-prime minister Stephen Harper (at right) were on hand when AGT CEO Murad Al-Katib (centre) announced plans for a new pulse milling facility in Regina in 2011 (Roy Antal/CP)

Every Wednesday, a curling team troops into Rosie’s on River Street in Moose Jaw, Sask. and orders a round. Their tipple of choice at this well-loved local: Rebellion Lentil Cream Ale. “They drink pints and pints of it,” says Chris Schubert, the managing partner at Rosie’s. The beer is also popular with summer tourists looking for some local flavour on visits to this small city, he says. “And it doesn’t get much more local than a Saskatchewan beer made with lentils.”

Rebellion Brewery—one of the province’s first microbreweries—produces the ale, using lentils from AGT Food and Ingredients, a processor and supplier of agricultural products. Murad Al-Katib founded the company in his Regina basement in 2001, and took it public (TSX: AGT) in 2007. A decade later, AGT has more than 40 facilities and sells into 120 countries around the world; revenue in 2016 was $1.9 billion. Its success has come from a combination of ambitious expansion into new markets, smart acquisitions, an innovative business model, and good timing.

Canada is the world’s largest producer of lentils, and ranks among the world’s top five producers of pulses—the broader category of legumes that also includes beans and peas. Two factors account for the tremendous growth of the category in recent years: first, booming emerging markets like India, Bangladesh, China and Turkey are driving high demand; second, new crop research at the University of Saskatchewan has boosted yields for Canadian producers, fuelling the supply side.

AGT built its substantial business by connecting those two markets to an extent no one had before, in the process becoming an important hub in the global lentil market, connecting suppliers and buyers around the world. “They’ve got multi-origin, multi-destination capabilities, which most players globally do not have,” says Steve Hansen, a senior vice-president and equity analyst at Raymond James.

Building a global-scale order book was the first phase of AGT’s expansion; the second is now focused on vertical integration, buying key infrastructure up and down the supply chain. In 2015, the company spent $57.5 million to buy Mobil Capital Holdings, which owned and operated Saskatchewan’s Big Sky Rail and Last Mountain Railway. Combined with a previous acquisition, the deal gave AGT control of 683 km of track in the heart of the country’s pulse basket. “They crowded out a lot of the other global majors when they made that purchase, which was smart,” says Hansen. AGT now owns locomotives and loading sites where farmers can drop their crop deliveries in Saskatchewan, along with a terminal in Thunder Bay, Ont.; the company leases a fleet of grain cars that can be handed off to major freight movers to connect the two. There’s also a distribution centre in Tianjin, China, and a processing and storage plant in Mersin, Turkey, among other assets. Owning so many of the logistical control points of the pulse trade is a core part of AGT’s competitive advantage in what is otherwise a low-margin commodity business. “It’s not only about how great my products are,” says Al-Katib, who this month was named World Entrepreneur of the Year for 2017 by consultancy EY. “Infrastructure that is not replicable—that ultimately creates a barrier to entry.”

Most commodity giants move tons of un- or lightly-cleaned dry goods in the holds of bulk carrier ships. But AGT has long focused higher up the value chain, processing the pulses it buys from farmers near the source. Take chickpeas. AGT separates them out by size. The seven millimetre ones go to a hummus manufacturer; the eight- to the company’s own Laval, Que. canning factory; the nine- to a European canner; and the 10- to a U.S. packaging company for the Hispanic market. “Our ability to take that product, segregate the different sizes and attack the different markets, allows us to create margin,” says Al-Katib.

AGT does its shipping in 20- to 50-kg bags via container. The strategy allows it to “really merchandise the product,” Hansen says. The company has worked to create a premium brand—a practice that’s commonplace in the retail world, but less so at the wholesale stage. “We moved to what we call ‘laminated bags,’ which have full picture graphics,” Al-Katib says. The packaging costs AGT $3 to $4 a ton—a considerable sum for an agricultural product. But it clearly differentiates AGT’s merchandise, putting it at a premium to the rest of the market. Al-Katib illustrates with an incident that occurred a couple of years ago. One of the bag shipments was held up, so AGT used its old packaging design. “The importer phones us and says, ‘I can’t sell this product anymore. People will think it’s counterfeit, because it has your old bag,’” Al-Katib recalls.

Growing emerging-market consumption has been the mainstay of AGT’s growth, but the company has also developed a lucrative sideline serving food-conscious consumers in North American and European markets. “There were something like 2,000 products launched in North America last year using pulse ingredients as a major component,” Al-Katib says. Among them was the new Veggie Harvest line from Frito-Lays brand SunChips, which contains AGT’s yellow peas. Pulses, he says, are the perfect ingredient to meet the growing demand from young shoppers for products that check a long list of boxes: high-protein, high-fibre and gluten-free. Hansen says AGT has played a pioneering role in positioning pulse-based starches and proteins as food ingredients.

Another consumer choice trend is likely to boost the use of pulses in food products. Companies using genetically-modified (GM) foods will soon face labelling requirements, Al-Katib forecasts. In a 2016 Health Canada survey, just 26% of respondents said they were comfortable eating GM foods, and 78% want them to be identified as such on the package. While there has been research into GM pulses and the Indian government has contemplated their use, Canadian fields remain free of them. Al-Katib won’t weigh in on any side of the science, but he says pulses’ non-GM status is a “marketing attribute” that gives it an edge over another frequently-used food ingredient, corn. “There’s a target consumer base that isn’t small any longer that is demanding these products,” he says.

That includes lentil beer. Back in Moose Jaw, Schubert says Rebellion’s passes the most important consumer test: taste. “It stands on its own as a good beer, and it just happens to be gluten-free and made with lentils.”


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