Winnipeg Free Press - PRINT EDITION

A specialty-crop alliance

Processors join hands across borders for growth

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The fact that this year's wet spring in the Red River Valley prevented the seeding of acres of peas and lentils probably didn't trouble Ivan Sabourin as much as it would have in the past.

That's because Sabourin's specialty- crop processing and export company, Roy Legumex, is now part of a much larger enterprise, Legumex Walker Inc. (LWI). Formed after a $65-million initial public offering last month, the new company also includes a similar specialty-crop processor in Saskatchewan and a canola crusher in Washington state.

So though the wet spring dampened production in southern Manitoba, Saskatchewan's producers who might have sold to Walker Seeds in the past have had a good year.

"Becoming part of Legumex Walker is about diversifying," Sabourin said this week from his administrative offices in St. Jean Baptiste. "Not only within Canada, but we have been very clear that we are looking at expanding through acquisition, and we will be looking for opportunities outside Canada as well."

LWI joins Regina-based Alliance Grain Traders Inc. (AGT) as the only other publicly traded specialty-crop company in the country.

In fact, it was the success of AGT's global expansion play that partly prompted the creation of Legumex Walker Inc.

"We had been expanding and we wanted to further expand," Sabourin said. "We saw consolidation in the industry with AGT, the biggest player in our niche market, getting larger, and we felt the best way for us to continue was to grow as well."

Saskatoon's Walker Seeds was a great fit for Sabourin's operation, with complementary business operations and surprisingly little overlap. Combined, those two operations generated close to $300 million in revenue.

The deal came together thanks to an enterprising operation in Washington state called Pacific Coast Canola. Headed by Joel Horn, the new CEO of LWI, which will be nominally based in Winnipeg, Pacific Coast Canola had put together a deal to build a $120-million, 1,100-tonne-per-day canola crush operation in Warden, Wash., 320 kilometres southeast of Seattle.

It will be the only canola-oil operation on the U.S. West Coast, a region where demand for trans-fat-free vegetable oil such as canola is rising dramatically. Construction is underway, with seed supply guaranteed for five years from CHS, the largest farmer co-op in the United States, and with Swiss-based ag giant Glencore International as an equity partner. (LWI owns 85 per cent of Pacific Coast Canola.)

Horn said because canola was born on the Canadian Prairies, he came here looking for investors and partners, met Sabourin and David Walker of Walker Seeds, and the combination made sense to everyone.

For Sabourin, the addition of geographic diversification of production and processing into Saskatchewan (LWI now has four plants in Manitoba and four in Saskatchewan) and adding another weather and crop region with Pacific northwest canola was an excellent proposition.

Considering there are no structured hedging instruments for specialty crops -- Sabourin can't buy lentils futures contracts to hedge the price he's guaranteed producers -- diversification spreads the risk.

"Every aspect of the business is better," Horn said. "Roy Legumex and Walker combine so well. Both companies have a tremendous advantage: They can ship at a lower rate, they have a larger footprint when sourcing from farmers and they can take the farmers' product to different countries."

Sean Gatin, Winnipeg-based vice-president of Agri-Trend Marketing, an independent consulting firm, said he believes there is a lot of wisdom in the creation of LWI.

"They (Roy Legumex) felt they needed to do something," Gatin said. "AGT and Viterra are making moves to expand. Economies of scale and geographic diversity are important. Roy Legumex may have got shut out with the flooding (in Manitoba), but now Walker can carry the load."

The Roy Legumex Group of Companies has grown over the years into a $100-million-a-year company.

That happened while worldwide demand for pulse crops such as lentils, peas, beans and chickpeas has increased along with rising prosperity (and populations) in developing regions, especially India and the Middle East.

Canadian production of the seven major pulse and special crops increased from about one million tonnes in the early 1990s to 5.6 million tonnes in 2009, with record yields and area seeded. Canada is by far the largest exporter of peas and lentils.

Republished from the Winnipeg Free Press print edition August 26, 2011 B4

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