Food products | Alliance Grain Traders says the demand for pulse ingredients isn’t a passing trend
Alliance Grain Traders Inc. is morphing from a commodity exporter into a full-fledged food company.
One of the world’s largest pulse processing firms has finished commissioning the first of three production lines at its new food ingredient facility in Minot, North Dakota.
“This new line of business is expected to assist in furthering our stated objective of moving AGT up the value chain,” company president Murad Al-Katib said in a news release.
The plant has been producing and selling pulse flour, protein, starch and fibre ingredients since late June.
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Alliance signed a five-year agreement with Cargill earlier this year to supply the grain company with pulse proteins for the animal feed sector.
The processor is also supplying product to other food companies in North America, the European Union and China.
The first production line is operating at two-thirds of its 35,000 tonne annual capacity and should be at full capacity by year’s end, Al-Katib told investment analysts on a conference call announcing AGT’s 2013 third quarter results.
Based on initial customer interest, he anticipates it won’t be long before the other two production lines are operating.
It takes 90 to 120 days to build and commission each new line, at a cost of $3.5 million per line.
However, the company doesn’t intend to stop at one facility. AGT has targeted three of its red lentil splitting plants for conversion into pulse ingredient processing plants if, as anticipated, the margins in that business are “significantly superior” to the traditional pulse processing sector. The conversions would happen in 2014 and 2015.
The first plant likely to be overhauled is the red lentil splitting plant in Regina, which was AGT’s first facility. The huge Arbel splitting operation in Turkey would be next, followed by another Regina-sized plant in Williston, N.D.
The Regina plant could help service the rapidly growing North American and European markets for pulse ingredients. Al-Katib noted that Canada recently signed a free trade agreement with the EU that drastically reduces duties on pulse flours and fractions.
He estimates it would cost $12 to $15 million to convert the existing splitting plants compared to the $35 million required to build a new food ingredient processing facility.
Al-Katib believes it would be a profitable way to quickly boost the company’s overall capacity utilization, which has slumped to 61 percent.
Alliance hopes to achieve pre-financial crisis utilization levels of 67 percent by the end of the year and then boost it by three percent per year until full utilization is achieved.
Al-Katib doesn’t think the demand for pulse ingredients is just a passing trend brought on by the anti-gluten movement and books such as Wheat Belly.
“We don’t think this is a fad, diety type of thing,” said Al-Katib.
“We think that this is a sustainable trend. We think that consumers who are not celiac or gluten-intolerant still will continue to have a perception that they would like to reduce their gluten.”
One investment analyst seems to agree.
Anoop Prihar with GMP Securities issued a report about AGT on Nov. 6 that said research conducted by marketing company Mintel shows U.S. sales of gluten-free products have grown to an estimated $8.1 billion in 2013, up from $4.8 billion in 2009.
Prihar said the non-genetically modified food market in the United States is expected to grow to $246 billion by 2017, up from $178 billion in 2013. That would account for 30 percent of total food and beverage sales. Pulses are non-GM crops.
“We believe AGT could be uniquely positioned to participate in this growth,” he said.
Existing AGT customers such as Heinz, Unilever, Nestle, PepsiCo and Campbell’s Soup were asking for allergen-free pulse ingredients to replace milk, eggs, nuts, wheat and soybeans in their products.
“They kind of pulled us into it,” said Al-Katib.
He expects the food ingredient business to become a “material contributor” to the company’s bottom line in 2014-15.
Prihar estimated the segment could generate earnings before interest, taxes, depreciation and amortization of $140 per tonne, which is much higher than the contribution provided by AGT’s traditional pulse processing segment.
