President of Arbel Group in Turkey linked up with Al-Katib of Saskatchewan to create pulse processing powerhouse
Sean Pratt reports from the Global Pulse Convention in Cesme, Turkey, about what is driving pulse markets
MERSIN, Turkey — It all started with a complaint about the quality of Canadian red lentils.
That complaint led to a partnership that would eventually result in the formation of the world’s largest pulse processing firm.
The complainant was Huseyin Arslan, president of the Arbel Group, a red lentil processor in Mersin, Turkey.
It was 1997, and Arbel was buying 70 percent of Canada’s red lentil production.
“The Canadian shippers were not cleaning the product properly,” Arslan recalls.
He sent a letter to the Canadian Grain Commission outlining his concerns but received no response. So he contacted the Canadian embassy in Turkey.
Again there was no response, until a 24-year-old man from the Saskatchewan Trade and Export Partnership showed up in Turkey on a trade mission.
The Canadian ambassador to Turkey asked Murad Al-Katib to hop on a plane to Mersin to see if he could sort out the problem with Canada’s largest red lentil customer.
The next day he was in a face-to-face meeting with Huseyin and his older brother, Mahmut Arslan.
“I said, ‘I’m here from the government and I’m here to help,’ ” Al-Katib said.
That was the start of a relationship that would result in the formation of Saskcan Pulse Traders, which eventually became AGT Food and Ingredients, a Regina-based company that posted $1.7 billion in sales last year.
Al-Katib has always been the public face of AGT, but it was the Arslan family that provided the initial capital and technological expertise for the venture. They just prefer to remain in the background.
“There is no need for another face for the company,” said Arslan.
He frequently visited Saskatchewan and formed a bond with Al-Katib in the years that followed their initial meeting in Turkey.
During one of those trips, Al-Katib asked Arslan to consider investing in a processing plant in the province.
Arslan was already thinking along those lines. He noticed that Canadian plants didn’t know how to properly clean lentils.
“I was trying to understand if I could create a difference,” he said.
Arslan spoke to some of the biggest players in the grain industry, including Saskatchewan Wheat Pool, about partnering in a joint venture.
“They said this is too small and not an interesting venture for us,” he said.
Arslan then approached Al-Katib, who found 50 to 100 farmers who were interested in investing in the project.
However, Mahmut did not like the idea of working with so many partners.
“He said it would be very difficult to make a decision,” said Arslan.
So the brothers decided to build the inaugural red lentil splitting plant in Regina on their own and asked Al-Katib to manage the project in exchange for shares in the company.
The deal was finalized with a handshake at the International Pulse Trade and Industries Confederation meeting in Vancouver in 2001.
“We never had a contract be-tween Huseyin and I,” said Al-Katib. “When I needed the million dollars of initial capital, he sent it to my HSBC account.”
Arslan nonchalantly shrugs when asked why he didn’t insist on a written and signed agreement.
“If I am going to share a destiny with him, why do you make a contract? It’s unnecessary,” he said.
However, he did do his homework on Al-Katib, including meeting his parents.
Al-Katib quit his job at STEP and started working on a business plan in the basement of his home in Davidson, Sask. His wife, Michelle, was pregnant with twins.
At one point, Al-Katib asked Arslan for $15,000 to pay for incorporation fees, legal costs and other expenses. The next morning, there was $150,000 in his bank account.
Mahmut decided to pay Al-Katib’s salary one year in advance because he didn’t want Michelle worrying about finances during her pregnancy.
“You don’t think of a contract after that,” said Al-Katib.
The flagship Regina red lentil splitting plant opened for business in 2002. Arslan knew immediately that it was the start of something big.
He told a Farm Credit Canada banker that in five years the Canadian operation would be larger than the decades old Turkish parent company, and that is exactly what happened.
AGT acquired the Arbel Group in 2009 and became a publicly traded company.
The Arslan brothers are the largest shareholders in the firm. They have a trust fund that owns 3,312,601 AGT shares, and Huseyin Arslan is executive chair of the company.
Al-Katib owns another 533,213 shares. He is the sole voter of his shares and the trust fund shares, which together represent 16 percent of outstanding common shares.
The Arbel facility is the crown jewel of the company. The first lentil splitting factory on the sprawling 175-acre facility located eight kilometres from the Port of Mersin was built in 1989.
The family had previously owned a factory in a different location closer to the harbour.
The facility is in a constant state of construction. Over the years, the brothers have added a bulgur wheat processing plant, a durum mill and pasta manufacturing facility.
The combined sales of all facets of the Arbel Group is US$640 million, of which $375 million was derived from exports and $265 million from domestic sales.
The company bought 150,000 tonnes of lentils in 2015, 110,000 tonnes of which came from its Canadian operations.
However, its influence extends beyond its own operations. Arbel also partners with other major lentil processors in Mersin.
One of its partners is Goze Agricultural Products and Marketing Inc., the second largest buyer of Canadian lentils in Turkey.
Goze bought 50,000 tonnes of Canadian red lentils and another 10,000 tonnes of green lentils last year.
Turkey has rapidly become Canada’s second biggest lentil customer next to India. It bought 419,528 tonnes of lentils worth $375 million in 2015.
Arbel and Goze combined for 40 percent of that business.
Bayram Fettahoglu, chief executive officer of Goze, said Turkish lentil production has plummeted in the last couple of decades.
A country that produced 630,000 tonnes of red lentils and 216,000 tonnes of greens in 1990 grew 340,000 tonnes of reds and 20,000 tonnes of greens last year.
Fettahoglu said Turkish farmers are not happy with lentil margins and have moved to higher value crops such as wheat, corn and soybeans. The thriving Canadian lentil industry has also resulted in reduced Turkish production.
Turkish people eat 400,000 tonnes of lentils a year, which is close to what is produced by its farmers every year. Turkish consumers prefer the more intensely flavoured domestically produced red lentils.
So a lot of what is imported is re-exported to other countries in the Middle East and other Mediterranean countries.
Grant Winton, manager of international relations and marketing with Alberta Agriculture, said Canadian exporters are not comfortable shipping product to places such as Iran and Iraq.
“Turkey, on the other hand, is comfortable dealing with these markets. They have been for centuries. For Canada, it would be a step too far to sell from rural Alberta to rural Iraq,” he said.
Winton said exporters feel at ease with Turkey’s people, its customs and its banking sector.
“You can build a relationship with an individual and you know you will get paid when you make a sale,” he said.
Three-quarters of the lentils Goze imports are processed and re-exported to countries such as Iraq, Egypt and Saudi Arabia.
Fettahoglu said buyers know that lentils originated in Turkey. Farmers have been growing them there since 7,000 BC, and they appreciate the processing knowledge that has been passed down through the years.
Al-Katib said it was that processing know-how that made AGT’s Regina red lentil splitting plant such a success.
“(Huseyin’s) first memory of his life is sleeping in a jute bag tied between two posts in the factory,” he said.
“His mother would set him in the jute bag as a cradle, rock it with one foot and sew the lentil bags.”
Huseyin’s brother, Hasan, spent countless hours in Regina designing and building the plant.
He installed equipment that wasn’t common in Canadian processing plants at the time, such as a de-stoning machine and a Sortex optical colour sorting machine.
Al-Katib said AGT has benefited greatly from the Arslan family’s knowledge of the industry and its decades-long relationships with customers around the world.
He said Canadian farmers would not be producing and selling 2.4 million tonnes of lentils a year if the Arslan family hadn’t invested in Saskatchewan.
Arslan said he has complete faith in Al-Katib, who is able to bridge the gap between two different business cultures with his Turkish heritage and Canadian upbringing. He has become an honorary brother to the Arslan family.
The colleagues claim they haven’t had one fight in 15 years of working together.
“Murad always respects me as his elder brother,” said Arslan.
“When I don’t agree with him on some certain point, I say, ‘I don’t agree with you but I encourage you to do it.’ ”
Al-Katib said any time he has heard those words he never forges ahead with the original idea.
“There’s always a compromise that’s a better decision,” he said.