Monday, September 2, 2013

When do we get Cheaper Chicken?

Ontario residents want to know exactly when we get cheaper chicken.

On July 11, 2013, Ontario's Farm Products Marketing Commission ("FPMC") ordered Chicken Farmers of Ontario ("CFO") to drop the feed conversion ratio ("FCR") price adjustment factor by 16.3%.  CFO has been using this bogus FCR to screw the Ontario consumer for the better part of 10 years.

I've been getting phone calls, email, and conversations in person. Even the Globe & Mail has expressed an interest.

My best estimate is:   Never!

Think about crude oil and fuel (gasoline, diesel, home heating oil, etc.).  When there is a spike in crude oil prices, ever liter of fuel almost instantly gets upwardly re-priced at the new crude price plus the cost to change it from crude to gasoline or diesel.

If there is a sudden drop in crude oil prices, it takes forever (or at least 3 to 6 months) for the first penny to slowly work its way towards the consumer.  The consumer has to fight and competitively shop for each and every penny drop in retail prices.

Should we expect anything different here?

When CFO vacates 16.3% on the FCR, that should create a  9.78% drop in the minimum price of chicken.  Realize that is the minimum legal price.  Chicken producers could always charge more, and perhaps that is just what they will do, all 1,114 of them in Ontario.  In that case, there is nothing to hope for.

However, members of Ontario Independent Poultry Processors Association ("OIPPA") and Association of Ontario Chicken Processors ("AOCP") may have some bargaining power with the factory chicken producers.  They may be able to use this and some hard bargaining to get a lower price of chicken.

If they do this, there may be hope.

However, there are further processors for chicken that process it after the slaughter plant.  That could be breaded chicken fingers, TV dinners, ground chicken, and many other variations.  Ontario Independent Poultry Processors Association ("OIPPA") has some of these further processors as members.  Ontario has about 65 per cent of Canada’s further processors.

In addition, there are brokers, distributors, and wholesalers; all of whom would like to become (or stay) millionaires.  That means they will try to grab some or all of the vacuum created by CFO's correction in their bogus FCR pricing.

Finally, some retail stores have been using "cheap" chicken as a loss leader to attract customers.  These large grocery chains may use this lower cost chicken to raise their profits, changing chicken from a loss leader to a profit centre.

If all of these steps in the chicken chain from chicken factory to retail meat counter get a pang of conscience, or are asleep at the switch, there is hope that the consumer will see a price reduction.

The new pricing starts in Chicken Quota Period A-120 (Oct. 6 to Nov. 30).

At current consumption rates, there is usually 1 to 3 months supply of fresh and/or frozen birds in the system (depending on cut, grade, geography, and supply chain).  Since the Chicken Mafia want to delay the introduction of cheaper chicken as long as possible, we will assume a FIFO (First In, First Out) inventory system so that profits and product freshness are both maximized.

We can therefore hope for reduced chicken prices starting as early as the slim chance of Dec. 1, 2013 to the possibility of Feb. 1, 2014, or most likely never.

However, there is hope.  Consumer expectation is everything.  If EVERYBODY knows and expects a reasonable and timely drop in chicken prices, that expectation could carry the day.

If everybody tells there butcher, meat counter re-stocking student worker, or grocery store managers about this bogus FCR, the 16.3% reduction, and their expectation to see it as a retail price reduction of 7.21% at the retail meat counter.

If we all start our lower chicken price expectation marketing today, we just might get an early Christmas present at the meat counter.

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