Tail Wagging the Dog

Who is the Top Dog in Canada's farming sector?  It depends on who you ask, but the arrogance of the #ChickenMafia and #EggMafia tends to taint the answer.

Figure 1:  Farm income for various types of Canadian farms.
Source:  See Stats Canada Table 5 Median income of farm economic families
by NAICS farm type in Canada, 2010

We might as well play to the swelled heads of the chicken & egg sector.  They are rich compared to all other farmers, with median annual income of $90,250 per year, as shown in Figure 1 at the right (click graph for bigger version), making chicken & egg farmers the highest paid farmers in Canada.  These millionaire, decadent high rollers represent only 2.1% of all farm families in Canada.

The median annual income of chicken and egg mega factories is 21.1% higher than the median farm income in Canada.  If the COP (Cost Of Production) is supposedly set so they get "a reasonable return on their investment", why are they the richest farmers in Canada?

Do you think their farm incomes are artificially inflated by the $1 Billion a year this sector has been unfairly charging Canadians for their bogus FCR?

What justifies this dramatically higher income for the #ChickenMafia and #EggMafia?  Note that their income is 9.43% above their nearest competitor, greenhouses.  Look at the graph and see how their bar sticks out far more than the trend established by all other farming sectors.

The #ChickenMafia and #EggMafia are an outlier, due to them taking unfair advantage of the Canadian public.  Why can't you ever find a Robin Hood when you need one?

The dairy farmer is the worst off in many ways.  They have the lowest median income of just $65,010 and represent 7.9% of all farm families.

The farmers I speak with have great respect for how hard a dairy farmer must work.  Almost all non-dairy farmers say they would never want to be a dairy farmer due to the slave-like job description and twice-a-day expectation to be milking cows.

However, farming isn't all about money.

Figure 2

The largest group of farmers are the "Oilseed and grain farmers" who represent 29.7% of all farmers.

If we take the median income for a farming sector, and multiply it by the % of Canadian farm families in that sector, we can quickly calculate the weighted fraction of total Canadian farming income produced by that farming sector.  That data is shown in Figure 2.

The first remarkable fact is that the chicken and egg boys drop from 1st place, down to the "Useful Many" (or "Trivial Many", as you please), as defined by Pareto; 3rd from last place.  Of the SM5, only dairy is in the "Vital Few" category.  The biggest producer of income are the oilseed & grain farmers, due to the high value crops, as well as their strength in numbers.

If the government wants to listen to the farming sector, they best be listening to the oilseeds and grain farmers first and foremost.

Unfortunately, the chicken and egg boys keep grabbing the microphone away from all other farmers.  The #ChickenMafia and #EggMafia boys squeal and whine and cause a scene until they are at the front of the line, and always insist on getting their own way.  What age group are you reminded of by that description?

As long as the #ChickenMafia and #EggMafia are allowed to control the farming show, they will naturally continue to do so.

Who better to reign in the SM5 Mafia than the other farming sectors?  When you look at the comments on Better Farming and many other websites, it is obvious that there is growing understanding about the SM5 Mafia and their need for center stage.

Once the farming community has had enough of the SM5 whining and taking advantage of the situation, likely the public will soon wise up shortly thereafter.

How long will the tail be allowed to wag the dog?

Once all other farmers decide to reign in the renegade and bad acting SM5 Mafia, it will be the beginning of the end for the SM5 Mafia, and their abuse of Canadians.

Aaron's Eggs

I previously Blogged about Aaron Hiltz's dilemma.  More and more customers want to buy eggs produced by his green grass patured chickens.  However, the Nova Scotia Egg Producers ("NSEP") have laws that limit Aaron to just 100 chickens unless he buys expensive (Aaron say unaffordable) egg quota.

Aaron currently has 700 chickens on his farm, 100 who are legal, and 600 who are illegal immigrant chickens without papers.  So far, drone airplanes owned by CIA, NSA, or RCMP have not yet been spotted  circling Aaron's farm.  However, NSEP has charged Aaron with harboring illegal chickens, which could result in a fine of up to $6,000

Aaron seems to have done a pretty good job of lobbying for himself and other small flockers.  In his latest CBC Radio interview, Aaron outlined another proposal for compromise between NSEP and small flockers.  Aaron's latest plan is modeled on the pastured chicken settlement in Nova Scotia about 20 years ago.  Then, small flockers wanted to go after the specialty market, but couldn't without quota.  Quota-bearing chicken farmers weren't interested as they were already fully invested in their chicken factories, and weren't interested in cannibalizing and competing against themselves so as to respond to consumer demand; they considered pastured chicken a ridiculous fad.  The #ChickenMafia knew better than all others.

A fight broke out twenty years ago, and it was eventually settled by small flockers becoming licensed to supply this niche market for pastured chicken.  Now, Aaron quotes a few interesting statistics about Nova Scotia's chicken factories vs. pastured poultry:

• There are 84 quota-bearing farmers who run NS's chicken factories under NSEP rules.
• NS chicken factories typically have 10,000 to 20,000 hens.
• Some chicken factories in Canada have as many as 400,000 hens on a single chicken factory farm
• Pastured chicken in NS has 0.5% market share, produced by 35 small flock farmers.
• If the chicken factory model is used for all chicken production in NS, the farmer count would go from the current 84 farmers to a grand total of 85 (1 extra farmer)
• If the small flock model was used to produce all of NS chicken, the number of farmers would go from 119 (84+35= 119) to about 7,000 farmers.
• Aaron asks which model makes more sense when we need more jobs, and need to strengthen our rural economy?

It may be that we can't find 7,000 farmers to fill all the theoretically available slots in NS.  Some consumers may decide that they don't want pastured poultry, so not all of the chicken factories will ever go totally away.  But, why oh why can't small flockers be allowed to slowly grow and prosper, and achieve their full destiny?

The same questions apply equally well to Ontario, and every other Province.

The #ChickenMafia may argue that they produce a far better quality and cheaper meat in their chicken factories.  I suggest that the customers of the pastured poultry farmers think otherwise.  Unfortunately the  customers of pastured poultry are not consulted.  The #ChickenMafia isn't interested in the customer's silly notions about chickens living in grassy pastures.  The #ChickenMafia knows what's good for all customers, as well as themselves.  Their arrogance is self-preserving for their government induced monopoly.

Aaron suggests that the #EggMafia could start to evolve in the same direction as what the #ChickenMafia did 20 years ago.

Two days ago, it was announced by NSEP that they were rolling out a new program for small flock farms.  The quota exempt limit would be raised from 100 hens to 200, and a total of 2,000 free hen quota would be leased amongst 4 new farmers through a lottery system (500 hens per farmer).  If aaron enters the lottery and wins, he'd be allowed 700 hens maximum; exactly the same number of hens he currently has.  Isn't it interesting how these numbers magically work out!

Of course, if Aaron loses the draw, he will have to reduce his flock to just 200 birds; a 71.4% drop.  Ouch!

SFPFC received a nice email yesterday from Honorable Leo  Glavine, Nova Scotia's Minister of Health and Wellness:

Good Day Glenn,

I want to thank you for your very informative email on why the farming commitment of Arron for a healthier product should be given support and therefore a change in the regulations. I have been involved in this case for some months and I am pleased that our Minister of Ag has moved quickly and I think Arron will be pleased with the 500 level quota. This is a positive step and hopefully entry to the program will be smooth and beneficial to Arron and others.

Thank you for your advocacy....

Leo Glavine Minister of Health and Wellness..

 I know there were a lot of people pulling for a reasonable solution to this issue, Minister Glavine included.  I'm glad that SFPFC could play a tiny role in helping a positive outcome to appear.

SFPFC has sent an email to Minister Glavine, as well as Honorable Minister Keith Colwell, Minister of Agriculture for Nova Scotia, thanking him for his assistance, support, and/or urgency that he gave to this situation for all small flockers, the people of Nova Scotia, and Aaron.

It is no doubt that this move by NSEP is significant, appreciated, but microscopic when compared to the magnitude of all the necessary changes that are required.

A small movement could be a strategic retreat by the #EggMafia.  It helps shows they are "reasonable", willing to listen, and reduces the driving force for total overthrow of their monopolistic system.

I'd suggest that 7 similar movements (ie. 6 more) would be needed to say confidently that they're evolving.

Most likely, the #EggMafia's strategy is to make a small movement to placate their critics, yet only slightly more than a token concession, so as to not upset their allies.  Next, they quickly reinforce that new position by underground foundations down to the local bedrock; foundations so massive that no power on earth could force a second movement; in other words, a Maginot Line.

So what does an opponent do when they are facing a Maginot Line?

At the start of World War II, the invading Germans did the same to France's Maginot Line as what the Allies also subsequently did for mountainous fortresses held by the Germans/Italians in Italy, as did the US Marines in the Pacific for the hundreds of island on which the Japanese soldiers were well prepared to defend with their lives; all of them left the enemy alone, left them exactly where they were dug in, kept sufficiently distant so the enemy's weapons were useless, and went around, rendering the enemy and their unbeatable position obsolete.

Question is, if this turns out to be an accurate assessment of the #EggMafia and #ChickenMafia's strategy, how do Small Flocker's best bypass their Maginot Line?

Frightening Farm Finances

Are Canadian farm finances in a dangerous condition?  Are farmers debt slaves to their banking masters?  Sadly, it appears to be true.

Figure 1

The first graph (Figure 1) of Statistics Canada CANSIM Table 002-0004 shows that Canadian farms are growing at 3.655%/yr in total value produced, which is doubling and re-doubling every 19.15 years.

These are inflating dollars, but seem to be at, or slightly ahead of inflation.  So far, so good.

While the output is going up, it must go up faster than the input costs, or the farm is in trouble, now or eventually.

Figure 2

Stats Canada reports this balance as "Net Value Added", which is Gross Income minus Input Costs.

Figure 3

This data is shown at the right in Figure 2.  Oh oh, the net value added as a % of total production is dropping over time.  That means that input costs are going up faster than the gross total income.  This tells us that the net profits of Canadian farms have been steadily dropping since 1981.

Houston, we have a problem!

Have the farmers been overdosing on new shiny tractors, barns, and other capital investments?

Total interest payments shown in Figure 3 have been going up at a very slow rate, 0.773%/yr. in spite of the far more rapid growth in total production.  It's almost constant, like somebody is trying to keep it constant over this 28 year period.

Bank policies could possibly create this type of effect.

There are two type of bank loans to which interest expenses are attached.  The first are operating lines of credit, used to smooth cash flow such as buying seed and fertilizer in Spring, then repaying the loan once the crop is harvested and sold to market.  The other type of loan is for the investment into capital assets such as land, barns, farm machinery, etc.  If anybody knows for sure, let me know.

Land purchases can't be depreciated, nor can input costs.  If we look at the depreciation charges, it may help determine what is going on.  Farmers aren't forced to claim depreciation, but Income Tax rules set the maximum claim allowed.  We will need to assume that whatever farmers have claimed, it has been consistent over the entire 28 year period.

Figure 4

In the graph at right (Figure 4), we see that  depreciation claims have been growing at 0.94% per year, eerily similar to the 0.773%/yr increase in interest charges.

Figure 5

It would seem plausible (but is only a guess) that most or all of the interest costs for farmers is associated with the purchase of depreciating capital assets (eg. barns, tractors, machinery, etc.).  It is suggested the difference of 0.167% (0.94 - 0.773= 0.167) could account for inflating prices for those assets.

The next graph, Figure 5 shows that the interest expenses as a % of the farm's revenue has been declining since 1981.

The final graph, Figure 6, shows the Canadian bank interest rate for business loans as reported by Statistics Canada.  It is assumed that this business interest rate is a reasonable proxy for the interest charged to Canadian farmers.

Figure 6

Interest rates hit a maximum of 22.75% in August 1981.  Since then, rates have been steadily dropping, mainly due to Central Bank policies on a world-wide basis, lead by the US Federal Reserve, to drop rates after run-away inflation was broken, and to artificially boost the economy as it failed again and again due to mal-investments and financial bubbles (eg. Dot Com bubble, Y2K, 9/11, real estate bubble, sub-prime loans, Wall Street fraud, Too Big To Fail Banks, etc.).

Today, the same interest rate is just 3%.

How do we explain Figure 3 with a 0.773%/yr increase in interest paid when interest rates are dropping like a stone during the same time period?

Assuming that farmers were charged similar interest rates to other businesses (either through FCC or Canadian Chartered Banks), then these facts can only be explained if the amount of farm debt is going through the roof.

Figure 7

This means that as soon as farm assets (eg. land) increase in value so that they can be used as additional collateral to obtain additional loans, and/or interest rates drop so that the farmer can borrow more $ without increasing the total cost of all loans, then the farmers did so.  That theory is supported by Figure 7.

It appears we have guessed correctly.  It appears that Canadian farmers are addicted to debt.

Perhaps this farm debt addiction enabled Farm Credit Canada to rapidly increase its farm loan portfolio.  As I previously reported in this slimy Blog:

This request [Federal Government's request that FCC be risk assessed by OSFI] is said to be linked to FCC's loan portfolio growth of more than 400 percent since 1997 to $24.9 billion, accounting for nearly 30 percent of Canada's farm debt.  That's an average portfolio growth of more than 9%/yr for those 16 years, doubling and re-doubling every 7.7 years.

FCC is tooting its horn, claiming 20 consecutive years of portfolio growth.  While FCC was a major enabler of this debt overdose by Canadian farmers, if FCC had found restraint, most likely Canada's Chartered Banks would have gladly obliged mis-guided farmers.

As reported before, it will take Canadian farmers 70 years to pay off their current debt, more than 3 generations in duration.  Today's farm owner has sentenced himself, his children, and his grand-children to life under the inescapable weight of the debt this generation incurred.  Only the great-grandchildren of today's farmers have a hope of getting debt-free.

The Producer has also published some additional info from the various Chartered Banks and others about scary levels of farm debt.

Canadian Bankers Association ("CBA") notes that it is even worse that the above data suggests.  In addition to the $25 Billion in bank loans, banks have loaned an additional $12 Billion to farmers without additional application (I assume this means a personal line of credit).  Agriculture is 16% of the banks total SME (Small Medium Enterprise) lending.  Banks have 36% market share in this farm debt pit.  With 30% for FCC, that leaves 33% for credit unions and others.  Everybody is exposed when this farm debt bomb goes off.

When an SM5 (Supply Management 5) goes bankrupt, or is under the protection of the Farm Debt Mediation Act will they still be producing the dairy, eggs, and poultry meats that Canadians need?  Perhaps Small Flockers will be some of the few poultry supplier who are left standing.  I have no facts to support this, but I sense that Small Flockers have significant lower debt than the #ChickenMafia.

All Canadians should locate their nearest Small Flocker, and introduce themselves.  That acquaintance may soon come in handy. For the financial challenges that are soon to arrive, the Small Flockers will survive, but the #ChickenMafia will not.

The Chinese are buying up farms all across North America.  This Blog gets 2.76% of our hits from Communist China; 5th place on a country basis after Canada, USA, Germany, and UK.  Perhaps Chinese fans of this Blog will be alerted to get their cheque books ready.  If somebody doesn't do something different, the Chinese and others might soon be buying up the failing farms of Canada as they come onto the auction block.  Excessive debt will unfortunately start killing Canadian farms faster than a spent chicken going through a chipper.

Having farmers tied to their farms as debt slaves is good for bank profits.  And so that is what occurred.  The farmers of today are no better than the people of Israel under the rule of Pharaoh; debt slaves all.

FCC: The Farm Debt Trafficker

I previously Blogged about Farm Credit Canada ("FCC") here, and here; mainly about FCC possibly aiding and abetting the farming community to overdose on debt.

I next read the 2012-2013 Annual Report of FCC.  It's very nice, quite impressive at first glance.  They say all the right things. For example:

• "Agriculture Matters"
• 2 million people work in agriculture or agri-foods
• FCC has over 100,000 customers
• "Agriculture. We know it. We love it. We’re in it for the long run."
• Growing their loan portfolio by more than 8%/yr for the last 3 years
• 20 consecutive years of growth
• Impaired loans (ie. loan payment late or defaulted) are just 1.33% of total loans receivable.
• FCC's Mission, Vision, and Corporate Values are excellent.  In my opinion, they're comparable to any textbook on Business Excellence
• "FCC is a prudent lender"
• 95.2% of the 40,478 loans issued in 2012/13 were to farmers (primary producers), the balance to agri-industries upstream and downstream of farmers.
•  etc.

  Somebody did quite an excellent sales job.  However, is their meat behind the window dressing?

In 2012, FCC offered support to the hog industry who were is great financial difficulties again.  That means payment deferrals, re-financing, and other creative measures to keep the loans from going into default.  Is this a major reasons for only 1.33% impaired loans?

Source: FCC Annual Reports

I went back through all the Annual Reports for FCC, and cobbled together the data on loan write-offs, shown at the right here.

FCC's loan write-offs have been growing at 6.69%/yr.; doubling and re-doubling every 10.5 years.  Write-offs are growing slightly slower that the loan portfolio, so FCC seems to be ever so slightly reducing their risk exposure, or they have been lucky so far.

Here is what FCC said in Sept. 1984 about loans collateralized by inflated farm land values:

During the inflationary 1970's, many producers acquired modern buildings and purchased new equipment. Unfortunately, these purchases were not always financed from farming profits. Many farmers borrowed against inflated land values. Now these modern farm enterprises have much higher fixed overhead costs. Declining land values in the1980's coupled with instability in commodity prices and lower farm incomes have left this group of farmers unable to meet large debt payments.

During the eighties, consecutive declines in cash flows coupled with lower purchasing power forced many farmer s to offer some or all of their land for sale. But there are few buyers. The resulting imbalance between supply and demand for land has either reduced land values or resulted in price stagnation. Many who could wait no longer are bankrupt already, resulting in a record number of farm bankruptcies. 

FCC had to be bailed out by the Federal Government soon thereafter, to the tune of about $2.5 Billion dollars.  Remember, that bailout came from the Federal Government, who in turn took the money from Canadian taxpayers.

Source:  FCC Farmland Value Reports

According to FCC, In the 1981 Census of Agriculture, farm real estate was worth $104 Billion, which was 79% of the total value of farm capital in Canada.  FCC data shows a 5.32%/yr average increase, doubling every 13.2 years.  The cumulative increase is 256% as compared to 1998  (blue curve to the left vertical axis, red curve to the right vertical axis).

However, Statistics Canada reports farm land was worth $70.197 Billion (53.86% of total farm assets) as of Dec. 31, 1981, and $200.47 Billion (56.97% of total assets) as of Dec. 31, 2010 which is a 285.6% increase in 29 years, or an average increase of 3.68%/yr.

I wasn't able to explain the discrepancy between FCC and StatsCan, except that these two organizations may have significantly different measurement methods.

Using Statistics Canada data between 1981 and 2010 (definitions here), we learn that today, Canada's farmers have:

• 254% higher current assets ("X"% as financial bubbles, ready to burst?)
• 683% higher quota value ("X"% as financial bubbles, ready to burst?)
• 266% higher real estate value (ie. buildings + land), ("X"% as financial bubbles, ready to burst?)
• 286% higher land values ("X"% as financial bubbles, ready to burst?)
• 269% higher total assets ("X"% as financial bubbles, ready to burst?)
• 377% higher total liabilities
• 255% better Equity (Total Assets - Total Liabilities), ("X"% of Assets are financial bubbles, ready to burst, but Total Liabilities are hard, real debts that won't go away until paid back or bankruptcy)
• 55% worse Current Liquity (Current Assets/Current Liabilities)
• 48.5% worse Acid Test ((Current Assets+Accounts Receivable)/Current Liabilities)
• 48% worse financial leverage (Total Liabilities/Equity)
• 39.5% worse debt solvency ratio (Total Liabilities/Total Assets)
• 275% worse return on assets, (NIBT+I)/ATA
• 212.5% worse return on equity (NIBT/AE)
• 11.3% better Interest Coverage Ratio (NIBT+I/I), mainly due to record low interest rates, but for how much longer?

With all the land lost to urban sprawl since 1981, how do we justify that the puny fraction which still remains as farm land in 2010 is worth 286% more than all the farm land back in 1981?

If you ignored the record low interest rates of today, and the various bubbles that have temporarily inflated asset values, Canadian farmers are rich on paper (land valuations + quota), but can't cash in without getting out of farming.  What's really worrying is that farmer's financial ratios are terrible, and getting worse.

If you allow for interest rates rising faster than they can pay their debt off, and the bursting of the asset bubbles, most Canadian farmers have a ticking time bomb under their bed.

Urban, prime real estate is said to hold value, increasing by 0.3% per year over the long term (ie. cost of property taxes and mandatory maintenance); anything more than this is a bubble that will eventually burst.  Perhaps the same logic applies to farmland.  Canada's former Finance Minister, Garth Turner, has well documented on his real estate & financial Blog that Canadian residential real estate has already entered free fall, will continue to slowly decline, losing 20% to 30% of its currently inflated value.  Others feel that the Canadian real estate market will drop by up to 90% in value.  See http://theautomaticearth.blogspot.ca/2010/12/december-21-2010-stoneleigh-and-max.html, putting real estate back to 1985 values.

Dr. George Brinkman (see here, here, and here), a retired economist from the University of Guelph began warning about the Canadian farmers' debt load being unsustainable more than five years ago.  He has called Canada’s farm debt level a “ticking time bomb.”
  Debt servicing charges of more than $2.3 billion were one of the largest farm expenses off the farm bottom line last year.
  In 2009, Dr, Brinkman said,

"In the U.S., farm incomes are increasing, while ours are stagnating or going down, and it will take Canadians 23 years to pay off their average debt, while it will take most Americans about 3.5 years."

Dr. Brinkman says that farmers have to collectively say "NO!" to spiraling debt and land prices because if not, their neighbour down the road will snap it up, and the prices will keep spiraling.  Dr. Brinkman says it will take the average farmer more than 70 years to pay off their current debt.

What do you think are the odds that interest rates will go significantly higher, or a financial bump in the road occurs at some time within those 70 years of payback?  Do you think their tractor might wear out and they have to buy a new one sometime in the next 70 years, thereby pushing their debt even higher?

I say the same advise applies to the banks, FCC included.  The bankers also know that if a farmer is looking for money, they have to say "YES !", or another banker will snap up the deal, gain the commissions and market share, thereby enabling the spiral to even riskier deals in the future.

It is the government through Bank of Canada, Office of the Superintendent of Financial Institutions ("OSFI") and other agencies to set the collective standards for all commercial lenders so as to avoid this competitive spiral to debt bubbles and subsequent collapse.  If not, it is Canadians who will pay the ultimate price for this financial insanity.

This trend is encouraged by FCC and others allowing interest-only loans for the purchase of depreciating assets (eg. cars, trucks, farm equipment, etc.)  This short-sighted tactic digs the farmers deeper and deeper into his debt pit every year.  It's a folie à deux, requiring both a crazy farmer and a crazy banker, for it to occur.

History never repeats, but it sure rhymes.  There seems to be significant similarities between then and now.  Is there nobody left at FCC who remembers these crazy days of yore?
  
Might I suggest that FCC be required to report annually on the number of loans that are re-negotiated to avoid or mitigate loan impairment or default.

As for OFSI, I suggest that banks (including FCC) be limited to % Loan to Value, and assessed values can only increase at a maximum of 0.5% per year of a cumulative basis (catch-up is allowed).  If the purchase & sale agreement is for a higher price, the fool can pay it if he wishes to, but he can't get financing from any bank that is under OFSI and/or CDIC (Canadian Deposit Insurance Corporation).  This will eliminate property asset bubbles, flipping, and all similar nasty sources of risk and speculation that drives up cost of living for Canadians.  Of course, the powerful FIRE (Finance, Insurance, & Real Estate) monopoly, which includes developers, land speculators, conversion of farmland into subdivisions, builders, etc. will never allow this improvement to occur, for the current system is how they make billions of $ off the backs of Canadians.

On March 1, 2013, Bloomberg News reported that both finance (ie. Flaherty) and agriculture (ie. Ritz) ministries requested the review of Farm Credit Canada by the Office of the Superintendent of Financial Institutions, especially their appetite for risk.

This request is said to be linked to FCC's loan portfolio growth of more than 400 percent since 1997 to $24.9 billion, accounting for nearly 30 percent of Canada's farm debt.  That's an average portfolio growth of more than 9%/yr for those 16 years, doubling and re-doubling every 7.7 years.

I guess it's easy to grow your business when you're giving out money; everybody wants some.

That's why the Canadian Bankers' Association is watching FCC closely.  The Big Canadian banks want FCC to restrict itself to only be "lender of last resort".  Minister of Agriculture Gerry Ritz said, "They [FCC] are constantly under pressure from the chartered banks and credit unions to do less, not more."

On March 20, 2013 C.D. Howe published an Op-Ed piece in the Financial Post raising some red flags about the allegedly risky loans by FCC.   FCC quickly complained about C.D. Howe's use of "inflammatory and unsubstantiated words like 'sub-prime', 'dodgy', and 'hyper competitive' to describe FCC lending practices".

C.D. Howe reports that FCC's share of total farm loans has grown from 14 percent in the 1992 to 29 percent in 2011.  This growth is said to partially relate to modifications in FCC's legislation in 1993 and
2001, expanding their mandate.  That's an average annual growth of 3.91% over this 19 year span; doubling and re-doubling their loan market share every 17.9 years.

Since FCC has 30% market share of farm debt, and over 95% of their portfolio is loaned directly to farmers, FCC will be the epicenter of the debt bubble explosion; if or when it bursts.

Perhaps that is why FCC needs to be more cautious than all others when it comes to farm loans; taking only the best of the best financing opportunities.

I can't prove it beyond a reasonable doubt, but the unlimited rainbows, sunshine, and unicorns in FCC's annual report are perhaps too good to be true.

Perhaps FCC should go back and read its prior reports from Sept 1984, making sure they fully learned all the lessons that required a $2.5 Billion bailout the last time they tried this "more debt for all" approach.

#ChickenMafia Lies and Moral Hazard

Truth or lie? The SM5 (Supply Management 5) say they are totally self-funding, and not a burden on the public purse.

SM5 is:

• Chicken Farmers of Canada,
• Turkey Farmers of Canada,
• Dairy Farmers of Canada,
• Egg Farmers of Canada, and the 
• Canadian Hatching Egg Producers 

We now have a wonderful thing called Open Government.  This is where the government makes its data readily available to everybody in the world, without needing a Freedom of Information Request and the patience of Job.

I decided to give it a try for determining the correct answer to the above question about the SM5.  I found the database of transfer payments for the Public Accounts.  Transfer Payments are when the government pays out money or other benefit and doesn't get full value in return (eg. grant, subsidy, forgivable loan, etc.).  The database is for $10,000 or more; amounts smaller than this are hidden from view.

I couldn't get the search function to work, so I had to manually scan each data file. I searched for "chicken", "poultry", "dairy", "milk", "hatchery", "broiler", and "turkey" for the first 2 available data files.  I soon hit pay dirt, as follows:

2003/2004    AGRICULTURE AND AGRI-FOOD    Canadian Food Inspection Agency    Compensation payments in accordance with requirements established by regulations under the Health of Animals Act and the Plant Protection Act, and authorized pursuant to the Canadian Food Inspection Agency Act    Dewest Poultry Abbotsford BC    $227,057.00

2003/2004    AGRICULTURE AND AGRI-FOOD    Canadian Food Inspection Agency    Compensation payments in accordance with requirements established by regulations under the Health of Animals Act and the Plant Protection Act, and authorized pursuant to the Canadian Food Inspection Agency Act    Misty Acres Poultry Ltd Abbotsford BC    $191,753.00

2004/2005    AGRICULTURE AND AGRI-FOOD    Canadian Food Inspection Agency    Compensation payments in accordance with requirements established by regulations under the Health of Animals Act and the Plant Protection Act, and authorized pursuant to the Canadian Food Inspection Agency Act    Praire Chicken Farms Ltd Abbotsford BC    $152,787.00

2004/2005    AGRICULTURE AND AGRI-FOOD    AGRICULTURE AND AGRI-FOOD    Contributions for Agriculture and Agri-Food Sector Assistance - Food safety and Food Quality    Canadian Poultry and Egg Processors Council Ottawa Ont   $23,016.00

2004/2005    AGRICULTURE AND AGRI-FOOD    Canadian Food Inspection Agency    Compensation payments in accordance with requirements established by regulations under the Health of Animals Act and the Plant Protection Act, and authorized pursuant to the Canadian Food Inspection Agency Act    A & M Poultry Farms Ltd Abbotsford BC    $823,036.00

2004/2005    AGRICULTURE AND AGRI-FOOD    Canadian Food Inspection Agency    Compensation payments in accordance with requirements established by regulations under the Health of Animals Act and the Plant Protection Act, and authorized pursuant to the Canadian Food Inspection Agency Act    Ancor Poultry Farms Ltd Abbotsford BC    $402,607.00

2004/2005    AGRICULTURE AND AGRI-FOOD    Canadian Food Inspection Agency    Compensation payments in accordance with requirements established by regulations under the Health of Animals Act and the Plant Protection Act, and authorized pursuant to the Canadian Food Inspection Agency Act    Apperloo Poultry Farms Abbotsford BC    $722,405.00

I hope this is a sufficient number of hits to make the point.  There are 11 data files there (2003 - 2013).  I searched the first two files and got more than enough examples of large payments of taxpayer's money going to poultry farms.

I cannot confirm that these farms are #ChickenMafia members for that is a top secret list, but it seems impossible that small flock operations would be getting that type of payout from the Federal Government.

A quick search of news items show that Fraser Valley of BC (ie. Abbotsford BC and surrounding areas) had a major outbreak of bird flu around that time.  See Oct. 20, 2005, CBC News: Canada's poultry industry faces avian flu

The methods used by #ChickenMafia factories are a hotbed, ready for disease breakout at any time.  In this case, the predictable disaster occurred on numerous farms due to cross-contamination between nearby chicken factories.

The news article outlines how one chicken farm became infected, the flock was condemned, the birds were killed and disposed of, I assume a half-baked clean-up was performed (ie. inadequate precautions to protect against re-infection), and the replacement flock subsequently became infected, and it also had to be destroyed.  I can only assume that Canadian taxpayers compensated this #ChickenMafia farmer not once, but twice for his sloppy methods and cavalier attitude.

If this #ChickenMafia farmer had paid the full cost of his mistakes and his risky operation, somehow I think he might have done a better job at ensuring the second flock didn't get infected.  If the Canadian taxpayers are picking up 100% of the tab for his risky behaviours, would he be less willing to adequately learn from prior mistakes?  Why would the #ChickenMafia farmer be worried if he is spared the consequences from his actions?  There is no cost nor inconvenience to him whatsoever.

Does the #ChickenMafia pay any insurance premiums for these insurance compensations from the Federal Government?  Not as far as I know.  If you have info to the contrary, let me know.

This is out-and-out Moral Hazard.

Definition of moral hazard

In insurance, the chance that the insured will be more careless and take greater risks because he or she is protected, thus increasing the potential of claims on the provider.

The concept can be extended to any contract..that by its existence could prompt a signatory to take unnecessary risks.  Moral hazard arises when a contract or financial arrangement creates incentives for the parties involved to behave against the interest of others.

What this means is the #ChickenMafia gets all the profits and benefits, but Canadian taxpayers assume all the risk if something goes horribly wrong.

This Moral Hazard tends to cause more frequent claims, bigger claims, minimal prevention efforts, minimal mitigation of risks, and slower or no learning from prior mistakes.

This same Moral Hazard is what caused or contributed to the 2008 global financial meltdown with Wallstreet and the "Too Big To Fail" banks.  We saw how that worked out.  Million dollar bonuses for the bankers and a shrug of the shoulders for taxpayers and homeowners who are stuck with the consequences when the brown stuff hits the fan.

No wonder Canadians pay so much for chicken and the other SM5 commodities.

I therefore conclude that the SM5 is misleading the public with their "self-funded" propaganda; par for the course with the #ChickenMafia

If private insurance companies are unwilling or unable to provide the necessary farm insurance contracts for the #ChickenMafia, then I have no problem with the formation of a stand-alone Crown Corporation for providing agriculture insurance; provided the farmers pay the full cost of the risk resulting insurance premiums, and a reasonable return on the capital provided by the Federal Government.

Until that happens, we Canadians pay 300% more for the chicken we buy at retail, and we pay again for the "devil may care" risky behaviours of the #ChickenMafia.

Release the Kraken !

We have been labelled as frivolous and vexatious by the god-like Titans at CFC (Chicken Farmers of Canada).

Perhaps CFC grows frustrated and tired of the cat and mouse game.  Perhaps they feel threatened by our continued pressing of our points and grievances.

Soon, they will no longer be able to contain themselves, and will lash out against us.  We need to be prepared for their vicious and untempered assault against us.

Someone at the #ChickenMafia will soon say,

"Brother, it is time for the mortals to pay.  My child awaits to do your will."

The #ChickenMafia Don will then yell:

"Release the Kraken!"



There will be many who suffer from the vicious attack of the Kraken.  I expect to be one of the first targets of attack by their monster.  However, there are many of us, and there is only one Kraken.  Once the Kraken has spent his fury, some of us will still be standing, and we will find a way to regroup and defend ourselves.

SFPFC received two letters from CFC this week.  The first letter supplied some polite yet minimal answers to some of the questions SFPFC asked of CFC back in March 7, 2013.  They have finally gotten around to answering them.  It only took 245 days to respond, 0.67 years.  They said it was in response to a Farm Products Council of Canada ("FPCC") decision of Oct. 2, 2013.  I'm not sure what that refers to, but I'll soon find out.

The second letter from CFC levels the allegation that SFPFC's complaint against CFC is frivolous and vexatious, only meant to annoy and cause trouble, and is without merit.

Not wanting FPCC to be left waiting, SFPFC drafted up a response to CFC's allegations and sent it off to both FPCC and CFC.

I can imagine how CFC will soon feel about our refusal to drop our grievances against them, and the rest of the #ChickenMafia.  That's why I'm expecting the arrival of the #ChickenMafia 's Kraken any day now.

All the letters have been uploaded for your reading pleasure here.

If I may be so bold, perhaps FPCC might choose to offer CFC a choice:

1. CFC can voluntarily choose to respond to SFPFC's questions and disclosure requests with CFC's prompt, full, and final answers;
   
   or in the alternative,
    
2. FPCC will hold a public hearing on the issue of whether FPCC should order that all agencies under the Farm Products Agencies Act ("FPAA") will be open, accountable, and transparent for all duties and actions under FPAA, their Proclamation, and any multi-party agreements to which the Agency is bound.

If the #ChickenMafia unilaterally decides to release the Kraken against SFPFC, what form do you think the Kraken will take?

• As the leader of SFPFC, will the #ChickenMafia conduct a raid of my personal farm by the Chicken Police?
  
   
• Will the #ChickenMafia phone in a bogus complaint of animal abuse at my farm, and get the OSPCA to do their dirty work for them?
  
   
• Will it be a team of lawyers with reams of paper for lawsuits filed against SFPFC and myself personally?

Have any of you been in the #ChickenMafia 's bad books?  If so, I'd love to hear from you, in confidence or otherwise.  Send me a message.  Share your story with me, or the world, so we can better prepare for the arrival of the #ChickenMafia 's Kraken.

Who 'da #ChickenMafia?

Here is SFPFC's definition of #ChickenMafia

I received at email and subsequently spoke on the telephone today with somebody interested in learning just who or what the #ChickenMafia was.  So here it is:

Definition of #ChickenMafia from Small Flock Poultry Farmers of Canada

A tightly knit organization of individuals who individually and/or as a group are engaged in pathological and narcissistic opportunism for the growing, processing, distribution, and marketing of chicken in Canada.  With an assumption of arrogance and entitlement, their selfish goals are shamelessly achieved through secrecy, illegal or immoral means, regulatory capture, government lobbying, graft, intimidation, coercion, exploitation, distortion, illusion, distraction, exaggeration, projection, retribution, tyranny, envy, disrespect or oppression of others; especially those with competing interests.

Also available is the following alternative definition from http://www.hashtags.org/definition/chickenmafia/

Chicken Mafia is a slang, derogatory name for the chicken Supply Management system in Canada.

The Chicken Mafia members are all individuals and organizations who directly or indirectly benefit from the chicken monopoly created by Canada’s Federal and Provincial Governments. The Chicken Mafia, through their delegated powers, regulate the growing, buying, import, export, selling, pricing, transportation, marketing, and advertising of chicken in Canada.

The Chicken Mafia use their powers to charge 300% more for chicken meat than the same chicken outside Canada (eg. available in USA), and to prevent or limit locally produced, affordable food.

The Chicken Mafia has its own private police force ("Chicken Police") who claim to have the power to search and inspect any place without warrant, seize chickens & meat & business records, and laying charges against anybody they suspect of violating the Chicken Mafia’s rules.

If there are any cryptic terms, acronyms, organizations, or words used in this Blog, most of them are defined and described in our Glossary, found at the tabs at the top of every page, or click here.  If something is missing, leave me a comment, and I'll get it added.

FCC: A Plot to Kill Supply Management?

Is Farm Credit Canada an ally of Small Flockers and the public, helping to eliminate Supply Management?

In yesterday's Blog (Chicken Deflation) I showed  how Farm Credit Canada started in 1993 to loan more and more money, rising from 14.02% market share in 1993, to 30.2% market share in 2012.

From 1981 to 1996, the Canadian farm products increased in value faster
than the debt carried to create those products (green curve).  After 1996,
the debt charges increased faster than the increase in production value
(red curve), putting the average Canadian farm into a decline in productivity.

From 1981 to 1996, Canadian farmers were producing more and more value-added products as a percent of the outstanding debt they were carrying.  They were improving at 1.57% per year.  This means that they were improving their financial status during this period.  This means they were using borrowed money to enhance their farm.

By 1996, that all changed.

After 1996, farmers were racking up more and more debt, and the debt was increasing faster than the extra goods they were producing.  The value-added products being produced were increasing at 3.66%/yr, but the debt was increasing at 4.77%/yr. for 1981 to 2010 (all available Stats Can data).  When you ratio the product value to the debt, we learn that Canadian farmers are producing less and less on a % basis of the debt, declining at 2.86% per year.  This is obviously a growing problem that farmers will eventually have to deal with.  Farmers have overdosed on debt.

Is there a debt trafficker who helped induce farmers down this slippery slope to ruin?

Was this all FCC's fault?

It's possible that its not all FCC's fault, but it appears FCC helped enable the foolish behaviour of others.  FCC takes orders from their governmental masters.  Farmers are up to their eyeballs in debt.  As long as they can continue with their interest-only loans, and the currently low-low discount loan interest rates, the farmers can continue on their current course and speed.

However, once interest rates start to go up, or income drops (due to general economic malaise, retail price rollbacks, or otherwise), it's going to be a tough time for them.

It is unknown which agriculture sector is holding most of the debt, but I'm sure many of the SM farmers have used their quota as a mirage of capital asset that they have pledged as collateral.  As times get tougher and tougher, loan losses will mount.  Government, press, or the public will scream, loan files will be tightened, additional collateral will be sought rather than the quota, and #ChickenMafia and #EggMafia will have to ante-up, or their loans will be called.

If you're a farmer with a revolving term loan from FCC, you'd better read your loan fine print to see all the wonderful things FCC can do to you.

If you are one of these farmers, I would appreciate hearing from you so we can learn first-hand about the fine details of the farm debt situation in your region.  Leave  a comment below, or send me an email.

Once FCC has fixed their loan book with additional personal guarantees, collateral, hypothecation, and other financial wizardry, all the risk will sit on the farmer's shoulders.  These greedy or naive farmers will have to wade through the swamps of economic troubles while carrying FCC on their shoulders.

Thanks, FCC.

2013/11/25:   More on FCC

Chicken Deflation

"What a pile of rubbish" was the comment I received on my proposal for steady dropping of retail chicken prices in Canada (see Blog Posting Easy Road to Riches: Raping of the Canadian Consumer)

They obviously felt no more needed to be said.  Short & sweet.

Perhaps I'm being asked to prove my case.

In doing so, we'll also learn why the #ChickenMafia had better prepare Plan "B", a plan to immediately start dropping retail prices, and keep them dropping for at least the next 20 years.  It might soon come in handy.

Central banks around the world have electronically issued trillions of dollars and equivalents for expanding the monetary base to prop up the dangerously weakened economy.  That hot and easy money was used by the bankers and speculators on Wall Street et al to pay their greedy bonuses, and inflate the stock market, housing, and commodities (eg. copper, gold, steel, corn, etc.), driving up prices everywhere.  If the prices didn't go up, at least the quantity in the consumer package went down or to poorer quality, thereby inflating the $/kg prices.


Corporations enjoyed lower interest rates on their debt, downsized their staff, and therefore increased their profits.  They used the hot easy money to buy back their stock from the stockmarket.  With fewer outstanding stocks, their earnings per outstanding share soared, creating a mirage that all was well, driving up their share price through speculation even more.

Many Canadian farmers used Farm Credit Canada ("FCC") to overdose on easy payment, interest-only loans against their farm.  Since 1971, farm debt has been increasing at an average rate of 5.94%/yr, doubling and re-doubling farm debt every 11.8 years.

Credit Unions have tripled their market share of farm loans since 1971.  Banks were following suit up until 1999 when the Dot Com bubble burst, banks were badly hurt, and they had to pull in their horns.  FCC has been on a tear since 1993, probably ordered to do so in a delayed response to tight credit after the 1990 recession, Mad Cow, and similar issues.

While I personally have no proof, it has been repeatedly reported elsewhere that Supply Management farmers in Canada were allowed to cook their books, cook the loan applications, and FCC cooked their own books so that the Monopoly SM farmers could use their alleged equity in their SM quota as loan collateral, enabling them to overdose on easy credit, even more than all other farming sectors.

This will not end well.

The money velocity in Canada has been dropping and staying low since Dot Com Bubble Burst in Year 2000, so we're now at 1.6.

Similarly, US money velocity has been dropping since 1997.  Notice how low Money Velocity got in the 1929 Crash.  Where does your crystal ball tell you we are headed?

The problem is that consumers represent 75% of the economy.  With rising price inflation, wages stuck in suspended animation of the 1990's, layoffs, underemployment, and weak job prospects, consumers were forced into a tough decision.  Consumers could balance their family's books for income vs. expenses by curtailing their spending, or they could run up their HELOC (Home Equity Line of Credit) and credit card debt, landing themselves somewhere between "temporary survival", and "party on".  Most households decided (or were forced to) run up their debt, and now Canadians have one of the highest personal debt levels, even more spendthrift than the proverbial drunken US sailor.

Now that 0% down and 40 year amortizations on home mortgages are dead and gone, and credit card interest rates are at or above 20%, Canadians are in deep trouble, possibly more financial trouble than ever before.  This is one of the reasons why more and more Canadians are being forced to buy less healthy, cheaper food (see Blog posting Health Consequence of Food Monopolies).  As these trends continue, the expensive pre-packaged processed foods will be losing more and more market share.  People will choose, or be forced by finances to choose, lower cost menu items.  The 50,000 SKU's (Stock Keeping Units, brands, items) for sale in today's typical grocery store will be greatly thinned (eg. 20 types of ketchup will become 2).  Those suppliers who remain will have their profit margins squeezed and retail prices reduced, or those products will rot on the grocery store shelves, rarely purchased by the poor consumers.

Canadian food processors will be run over by US and European processors looking to dump huge quantities of processed foods at volume variance discount prices so as to keep their factories running.  This will be facilitated by the recent CETA trade agreement between Canada and the European Union, and NAFTA with the US.

This is the headwind into which Premier Kathleen Wynne wishes to double Ontario's agri-food business in the next 7 years.  That will certainly be a challenge.

With everybody else dropping food prices, this will not be the time for the #ChickenMafia or #EggMafia to think they have a trapped consumer who is forced to buy their product, regardless of the price.  Jacking up the price of chicken and eggs when everybody else is dropping prices will not go over well with consumers.

If the Mafia want to keep their heads and avoid the Canadian version of the French Revolution and their guillotine, the #ChickenMafia and #EggMafia should consider drafting Plan "B" for the rapid and continuous dropping of their retail prices for at least the next 20 years.

2013/11/25:   More on FCC here, and here

Easy Road To Riches: The Raping of Canadian Consumers

Why did the #ChickenMafia decide to take the easy road to riches, but which necessitates the repeated raping of Canadian consumers?

In a comment posted on Better Farming's website, an anonymous poster stated:

Not a Shred of Guilt!

There have been many Supply Management farmers in the past willing to suspend upcoming raises at the farmgate or even rollback prices in order to give consumers a break at the grocery store but the retailers have never been trusted to pass that on to the buying public.We see proof of that in the Pizza joints now!The same applies with Beef and Pork,while they were losing money on every shipped animal the Grocery stores made sure they were NOT!
That's why not a single Supply Management farmer should feel guilty about actually making money..the Retailers/Grocery giants don't !

 My response:

You mention that many farmers have been willing to suspend or roll back price increases to help consumers.

In SFPFC's  Blog posting of Feb. 28, 2013 we showed a graph of the #ChickenMafia 's handiwork for Canada Grade "A" chicken retail prices from 1995 to 2012.  It shows steady, managed growth in retail chicken prices of 3.54% per year, non-stop for 17 years (all available Stats Can data). Whether they were willing or not to roll back prices, the #ChickenMafia didn't do it.

Ah, you say, but those are retail prices, and the #ChickenMafia only controls farm gate prices.

True to a point, but the #ChickenMafia also controls the sale, marketing, and distribution of chicken.  The downstream distributors who insist on raising prices could have been red circled at their current chicken quota supply volume, and those downstream supply chains that choose to pass on the savings to consumer could have received the additional volume of quota that was distributed now and again.

The #ChickenMafia could have, but they chose otherwise.

That consistent price increase was part of the #ChickenMafia’s Strategic Plan, and they implemented their plan on the backs and life blood of Canadian consumers.

What the #ChickenMafia could have done was say something like the following:

 "Boys, we need to get a lot better, a lot more quickly.  Our chicken monopoly isn't our God-given right, it was given to us by the government as a sacred trust on behalf of the Canadian people.  Canadians want and need us to do an excellent job for them.  They don't want the charity of free chicken. They want affordable chicken." 

 "Canadians also want us to be 3-way sustainable; environmentally, financially, and in a generational sense so the next generation of chicken farmers have a future."

"That's why your leadership has prepared plans to help you rapidly improve your operations, so that you can achieve a reasonable return for your work and investment, and at the same time, the retail price of chicken in Canada keeps getting cheaper and cheaper."

"Our plan assumes that retail chicken prices will roll back at the same rate that we jacked them up for the last 17 years:  3.54%/yr price reductions.  We assume our COP (Cost of Production) will increase at 3.0% per year.  That's why our plan calls for us to improve ourselves at 6.54% per year.  I believe we can do that, as we're all going to work together and help each other, and do whatever it takes to make it happen."

"We think we have a pretty good plan, but it needs to be a lot better.  That's why we have come to you today, the true experts on chicken farming, to seek your input and help us build an even better plan."

"With that plan and much hard work by both you and your leaders, we will soon be the world's best chicken farmers; something that your family, all Canadians, and the world will marvel at, recognize, and appreciate."

"After our leadership by example, next we will share all that we have done with all other producers and farmers world-wide, so that they can more easily follow in our footsteps."

"Of course, that sharing and helping other chicken farmers world-wide will mean that us Canadian chicken farmers will have to continue working hard and continuously improving, or we will soon lose our position of chicken leadership.  But we believe that all of you are up to that challenge; if not today, then soon, for we will all work together and help each other."

"I now put the motion to a vote.  Do you Canadian chicken farmers accept your recommended destiny of working towards doing the best we can for Canadians, and being the best chicken producers in the world?"

To the best of my knowledge, Canada's chicken farmers haven't done that yet.  But if they so choose, they could do it tomorrow.

But they won't.

Likely, they'll scoff, call me names, summarily dismiss and never consider this idea until it's too late to save themselves.

That's why Small Flock Poultry Farmers of Canada (“SFPFC”) exists.

SFPFC will work tirelessly towards encouraging (or forcing) the changes that must occur in the Supply Management systems of Canada.


Glenn Black, President
Small Flock Poultry Farmers of Canada