George Morris Centre: Facts or Rhetoric

George Morris Centre says that it is "Canada’s leading economic agri-food research centre."  Is George Morris Centre the leader in agri-food research, or the propaganda centre for Big Food or Supply Management ("SM") rhetoric?

Rhetoric is defined as:

"language that is intended to influence people and that may not be honest or reasonable."

George Morris Centre ("GMC") used to be part of the University of Guelph.  Today, it is registered as a non-profit charitable organization.  According to its 2013 financial report, it is operating at a $475,000 deficit on a $1.8 Million annual budget; a 26.4% deficit.

GMC writes research reports, puts on seminars, and provides speakers.  They have a significant number of talented people who don't work for peanuts.  Finding the revenue each month to keep GMC going is likely not an easy task.

To help fund GMC, they sell memberships (Individual $250/yr, Association $1,000/yr, and Corporate $2,500/yr).  Are the opinions, needs, and desires of these GMC members influencing, controlling, or tainting the research and opinions of GMC?

Is GMC an independent, unbiased, and authoritative source than can be relied upon, or a shill and propaganda mouthpiece for Big Food and Canada's Supply Management sector?

GMC recently released a new research report, titled Is Food Really More Expensive in Canada Than the US?  This report was written by GMC Staff Members Al Mussell (Senior Research Associate), and
Kevin Grier (Senior Market Analyst).  Al has a background in US dairy, while Kevin is more into meat and retail grocery.

It takes brave individuals to write about something that just about everybody "knows" to be obvious, ubiquitous, and long ago assumed to be consistently true.  What could you possibly say other than re-hash the same facts over again?

However, these two GMC researchers dove into the deep end, and produced this report.  It seems that this GMC paper was prompted by the May, 2014 Commentary by the CD Howe Institute "Sticker Shock: The Causes of the Canada-US Price Differential" by Nicholas Li.  The CD Howe report found that consumer prices are broadly higher in Canada, and Canadian food prices purchased for consumption in the home was about 57% more expensive in Canada than in the US in 2011.

GMC's comments on the CD Howe report were:

"Meats and the milk, cheese, and eggs group were observed to have the largest cost differential, at 76-77% more expensive than in the US.  [Nicholas] Li comes to a familiar conclusion- blame supply management."

GMC appears to be great friends with Canada's Supply Management system.  Perhaps GMC has a majority of its members in the SM system.  When CD Howe complains about SM in Canada, what should GMC do to help its members who use SM proceeds to buy GMC memberships?

I wonder how much in charitable donations does GMC receive each year from the Supply Management sector?  Since all of those $ eventually come from Canadian consumers of SM products, it is easy to be generous with other people's money, so I bet SM is very generous to GMC.  If I am wrong, let GMC and SM disclose the truth so that we all know.

Exactly how many consumers, poverty activists, small flockers, affordable food supporters, and local food groups buy GMC memberships?  I doubt it's a large crowd.  My guess is that GMC has significantly less than one person in this large group who buys a GMC membership.  Also, I doubt any of these people attend GMC seminars.  If I am wrong in my assumptions, let GMC disclose the GMC membership data so we all know for sure.

So GMC has an easy choice:   support GMC members, and find some way to lessen the blow from the CD Howe report.  If you can't fight it with facts, perhaps GMC can muddy the waters so that there is confusion where clarity previously existed on the US-Canada food price differential.

CD Howe used OECD data to prove its case (data that originated from each government, likely Statistics Canada in our case).

GMC used data from US Department of Agriculture- Economic Research Service and an unspecified Canadian source (I assume USDA Table 97_2012, but that hole in GMC's paper is worrisome).  GMC determines that in 2012:

"in the US, food and non-alcoholic beverage purchases consumed at home were 6.6% of consumer expenditures. Canada came in with expenditures of 9.6%. This appears close to the 57% spread from the OECD data quoted by Li."

Let's see, 6.6/9.6= 68.75% and 9.6/6.6= 145% and (9.6-6.6)/6.6= 45.45% and (9.6-6.6)/9.6= 31.25% so we have something between 69% and 31% difference, depending on how you calculate it.  Oh oh.  GMC seems to support CD Howe and their conclusion that Supply Management likely results in higher food prices.  GMC goes on to explain it away:

"According to the USDA, US household consumer expenditures were $US 34,541; For Canada it was $US 27,761. This gives total expenditures on food for a US household of $US 2,273 and a Canadian household of $US 2,679. The implication is that, over the course of a year, Canadians spent about $US 406 more on groceries than Americans did. This is just under $US 8/week, or about 18%.  The implication is that when we factor in observed differences in consumer spending for all goods, apparently the difference in food expenditures is not quite so egregious."

GMC says Canadians pay 18% more, but doesn't say 18% of what.  It is incorrect to use percentages unless you clearly state what the percentage refers to.  GMC muddies the waters, again.  Taking a guess, I find that the US$2,679/yr that Canadians pay for groceries is 17.8419% more than the US$ 2,273/yr that a US family spends on groceries; close to the 18% figure stated by GMC.

Now that we know where GMC gets its numbers from, we can look at GMC's magical thinking more carefully.

The average US household earns 24.4% more than the average Canadian household.  In spite of the average US household earning more, it spends less on food, whether in absolute US$ (15.2% less) or as a % of household income (31.25% less).  Either way, Canadians earn 24.4% less and pay 31% more for food than our American neighbours.  The combined whammy of these two factors produces a 63.3% greater impact of food purchases on Canadian family budgets (ie. 1.244 * 1.3125= 1.633).

Whenever a propaganda pusher wants to create rhetoric (ie. propaganda), changing the basis of comparison, or taking percentages is a favorite ploy.  CD Howe says Canadians pay 57% more for food that US households.  To disguise this sad fact, GMC changes the basis of comparison and takes percentages.

GMC goes on, in its Table 1, to look at 2009 expenditures for food cooked and eaten at home vs. food eaten outside the home.  Here, Canadians eat out less than our US neighbours (6% for US, 3.7% for Canadians, for a 61.7% difference) .  Everybody knows it is more expensive to eat out.  Most restaurants charge a 200% to 300% markup (eg. if the food ingredients cost the restaurant $10.00 then that meal will sell for $30.00 in a restaurant if a 300% markup is used).  If Canadians can't afford the food they need, they certainly won't be maximizing their dining out experiences.  For this 2009 data, in-home and out-of-home food is 14.6% for the US, and 15.3% for Canadians, so Canucks pay a grand total of  4.79% more that our US neighbours.

GMC then concludes,

"In other words, it suggests that what Canadians and Americans spend on food in total as a share of consumer spending is about the same."

There is still a 4.79% difference in this 2009 data, which is dismissed by GMC as a triviality, so close to equal that GMC dismisses it as zero.

A 4.79% price difference to frugal Canadians is far from zero.  Have you seen how far Canadians will drive to buy gasoline at just 0.1 cents per litre cheaper (ie. 0.1 cents is a 0.069% price savings at 140.0 cents per litre)?

Of course, the data in GMC's Table 1 is 2009 data, 5 years old.  Does the CD Howe data of 2011-2012 suggest that things have gotten a lot worse for Canadians in those 3 intervening years?

Graph from Page 4 of GMC's Report, showing price trends in US and
Canada for food and all items purchased by households

Above is a graph taken from GMC's report.  We can see that all prices were indexed as of 2002 (ie. set equal on the index as of 2002).  From that starting point, US food prices increased the most, followed by Canadian food prices.

When you start with a small number (ie. US food prices), the same increase creates a huge percentage increase, as we see here for the US food price index.  For example, changing from 1 to 2 is a 100% increase, but to change from 100 to 101 is just a 1% increase.  This is just another propaganda trick.  I'm not fooled by GMC's slight of hand.  Were you?

Let's look at something that GMC exposed by their graph, but didn't discuss.  Since 2002, Canada's all item prices increased by about 22.5%, but Canadian food prices went up by about 32.5%.

I assume that "all items" includes food, so if we were to compare "All items except food" with "Food", we would get even a bigger price differential.  We will ignore this effect for now, but realize that the magnitude of the screwing revealed below is even worse than we state here because of this issue.

When we look at the relative price changes, the 2013 Canadian indexes 32.5% (Food) vs. 22.5% (All) is a 8.16% difference for Food Vs. All.  For the US in 2013, the price indexes are 34.8% (Food) vs. 29% (All), which is a 4.5% difference Food Vs. All.

In summary, everything was set equal in 2002, then US food went up 4.5% more than all other US consumer prices.  For the same period, Canadian food went up 8.16% more than all other Canadian consumer prices.  Therefore Canada has had double the price inflation rate differential (ie. Food Vs. All) of what the Americans experienced.  I would suggest this is an apples to apples comparison that clearly shows Canadians are being screwed for food prices.

Just as CD Howe reported, I agree with CD Howe that chicken, eggs, dairy, and turkey represent the leaders in the screwing of Canadians for food prices.  That means Supply Management causes or significantly contributes to the screwing of Canadians for food prices.

How can the same data be used to draw totally different conclusions?  I would suggest it is because a twisted tale is being created by a propaganda shill mouthpiece in one case.

Is this example enough to clearly show GMC's bias?  Are we done here?

Perhaps GMC is in a funding crisis because they are on the wrong side of the issues.

Perhaps if GMC was seen as a protector and defender of all Canadians, then all the governments, citizens, and the entire agri-food industry would support them and take them seriously.

GMC has done great works for Canada and Canadians in the past.  Perhaps the Board of Directors of GMC should re-read the bio of their namesake, George Fletcher Morris (1910-1999)  and determine if he would approve of this GMC report and its obvious bias against the 38 million Canadian consumers, and in favor of GMC's friends, the Supply Management millionaires.

Modify Supply Management before it's too late

Yesterday, we discussed our support for the new egg quota trading system for Ontario (see Egg Quota Sale by Auction ).

But wait, there's more!

Supply Management ("SM") was originally created as a clumsy, ham-fisted solution to the power imbalance between individual farmers and the large powerful corporations who bought from the farmers.

SM wasn't perfect then, and is less perfect today.  If the system was supposed to balance power, how come we still have all the same problems as before, and the power imbalance has gotten even worse over the 50 odd years of SM?

Instead of continuing with a flawed SM system for determining how many eggs to grow and the price those eggs are to be sold at, why not apply this same effective, modern tool to that side of SM too.

Here are the facts as I understand them:

1. Farmers know what it costs to grow their eggs.
2. Farmers would like to get the highest price possible for their eggs.
3. The farm gate egg sale price has to be above the farmer's break-even price if they are going to stay in business.
4. There is the ongoing possibility that some farmers are sufficiently incompetent, dastardly, lazy, or unwilling &/or unable to improve that they have lost (or deserve to lose) their social license to continue doing what they do; they need to retire or find a different career.
5. Some farmers are more efficient than others, and therefore have lower break-even prices.
6. Some farmers produce a higher quality egg than others.
7. Farmers need a steady production volume to avoid wild cycles of feast and famine (which can lead to inefficiencies and financial ruin).
8. If a farmer produces a higher quality egg at more reasonable prices, they deserve better remuneration for their skill and efforts.
9. Egg grading stations, egg distributors, and Canadian wholesale and retail customers want to buy the best possible egg at the lowest possible price, and have a consistent supply (not too many, not too few).
10. We are able to do random sampling of a farmer's eggs and develop a quality score.  A time weighted averaging of these quality scores will dampen any short term fluctuations in these quality scores.  The quality levels could be divided into 3 categories (Gold, Silver, & Bronze) with set minimum standards for each grade level.  Due to continuous quality improvements by some farmers, the egg quality will likely improve over time.  Once more than 50% of the eggs are in the Gold standard, the quality standards would be re-defined to re-balance the distribution of eggs into equal thirds again.
11. Egg sales can be done well in advance of the planned delivery date for a farmer's eggs so as to ensure stability in the marketplace (ie. don't grow an egg if you can't sell it).
12. Multiple sales can be done for the same delivery date, so if you are unsuccessful in the previous sale, you can try again in subsequent sale.  As long as there are enough buyers and sellers to hold a sale, another sale is held.  Using automated systems, the sales could happen every day, or every hour, or maybe every 5 minutes if need be.  Buyers and sellers could let their previous bids stand, or based on the results of the previous sale, they can make an adjustment in their bid.
13. For each current specification, there would be 3 separate auctions for three levels of quality (gold, silver, & bronze).  One would think that gold standard eggs would be limited in quantity, and will fetch a premium price.  If there are limited buyers for Gold eggs, the excess Gold eggs can be sold in Silver and Bronze auctions, thereby virtually guaranteeing that Gold eggs will always be sold.  Bronze eggs may have insufficient buyers, and therefore may have to go to a cracking plant at a significant loss in income due to their inferior quality.  This helps ensure continuous improvement in egg quality.
14. The sales are run as a truncated k-double auction, so as to ensure maximum value for consumers.
15. To avoid conspiracies and dysfunctional game playing during the auctions, there may need to be some mechanism or rules to prevent both farmers and buyers from using predatory bidding practices.

This proposal builds a level playing field for farmer, buyers, and the Canadian consumer.

Which of the Supply Management is brave enough to consider this alternative system for ensuring Canadians get the very best deal for their supply management commodities?

You can change a little now, or wait to have the decision ripped from your grasp.  The choice is yours.

CFO's District Balance

Chicken farmers are represented by their elected Director at CFO.  Is there balance between the power and influence by all 9 Districts in Ontario?

Let's take a look.



Chart 8 is from CFO's 2012 Annual Report, and gives the number of premises in each District, and the basic quota held by those premises.  On first look, it seems balanced.

When we do some additional analysis, we get the following table:



Here, we see that there is a CV% (Coefficient of Variation) of 31.68% on the number of premises in the various Districts.  That is somewhat large variability.  Similar comment on the Basic Quota in those Districts (32.85%).

The average quota per premise however, has a very small variability, a CV% of just 3.83%.  Therefore, all the Districts seem to have great consistency in the size of the various farms.

Next, we calculate the District's HHI (Herfindahl-Hirschman Index).  It is typically used to measure market share (see the Blog Post Why are there Gorillas in Ontario Chicken Coops? for more info on HHI).  Here, we see a CV% of 34.48%.  The largest influence is felt in DIstrict 3 with 18.35% of the quota-based HHI.  Usually, something within 2 Standard Deviations would be seen as normal and acceptable variation, and District 3's HHI is within 1.89 Std. Deviations of the all-District mean.



Above is the HHI data in histogram format, showing a distribution of HHI that is close to a normal bell-shaped curve, which is what we want.

So CFO has Districts that are more or less balanced.  Way to go CFO!  You got another thing right.

As farmers come and go (ie. retire or new farmers start up), this balance between Districts could shift.  Re-drawing District maps is not easy and it can cause difficulties for the farmers to get jerked from one District to a different one, so re-drawing should be minimized.

I hope that CFO does this type of analysis every year to keep tabs on the district-to-district balance.  This ensures that all farmers have an equal voice, and no District has an unfair advantage or undue voice at the Board of Director's table of CFO.