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A – for Nov. 25, 2010

price spike in grains will reverse some acreage gains by legumes in Western Canada next year, but over the long term, the shift to crops like lentils will persist, a leading legume exporter says.

Rising demand for protein in developing countries underpins the outlook for legumes, as for grains and fertilizer.

But lentils, chickpeas and beans, unlike meat, are a protein source that the rich and poor alike consume in key markets like India, North Africa and the Middle East, said Alliance Grain Traders chief executive Murad Al-Katib on Thursday.

“That’s appealing for investors who are interested in the agriculture story,” said Al-Katib in an interview from Regina, Sask. “Vegetable protein consumption is growing faster than production, so it’s a very compelling demand story.”

Canada is the world’s largest exporter of lentils, peas and chickpeas, with Alliance the top value-added processor of legumes.

DEMAND GROWING

Demand for legumes has caused Western Canada farmers to quadruple acreage in the past 20 years while curtailing sowings of wheat and leaving less land fallow. But 2011 could see a modest interruption in that trend, as farmers cash in on attractive prices for grains and canola, Al-Katib said.

“The dynamics of the cereal grains market have been affected temporarily by a (crop) failure in Russia and Ukraine,” he said of the region’s severe drought.

Al-Katib, 38, the son of Turkish immigrants, grew up in tiny Davidson, Saskatchewan, where only the most daring of farmers grew lentils during his youth. This year, they planted 2.9 million acres of lentils in Saskatchewan – more than either barley or durum wheat.

Attractive prices have built up that acreage, but farmers have also entrenched legumes in crop rotations because they fix nitrogen in the soil, reducing the need for fertilizer.

Al-Katib has built on the move to legumes by expanding Alliance, which he helped found nine years ago. In the last year and a half, Alliance has made key plant acquisitions in Turkey, Australia and China and has seen its shares on the Toronto Stock Exchange nearly double to about $29.

Since spring, however, Alliance shares have been volatile as excessive rain battered Canadian crops and delayed the harvest, underlining the need for the company to reduce its concentration in a narrow growing region.

NEW FOCUS

It’s now turning its growth focus to building or buying processing plants in the United States, especially North Dakota and Montana, Al-Katib said. Alliance, already dominant in the lentil trade, looks to build up its chickpea and dry edible bean sales by tapping into U.S. bean consumption.

Competition for Alliance is largely regional. Bigger grain handlers like Viterra ship unprocessed legumes in bulk, but Al-Katib said smaller players dominate trade of table-ready legumes.

Alliance’s fast growth may attract interest from bigger crop handlers, but with its top shareholder, the Arslan family of Turkey, and management controlling nearly one-third of the company, it may be a difficult target.

“Frankly, we’re having a lot of fun,” Al-Katib said. “We’re not looking to go anywhere except bigger.”

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