New Rules for Screwing Ontario Consumers

The Ontario Government is considering new rules on how to screw Ontario consumers for the chicken they buy.

The Government welcomes comments from Ontario citizens on how well they like the previous screwings, and how to make the screwing faster, and more effective.

What am I talking about?  They plan to change Ontario Reg 1990-402 under the Farm Products Marketing Act for setting the farm gate price of chicken.  You can read about it here then enter your own comments.

So as to prime the pump, here is what I submitted today.  The deadline to submit comments is Nov. 6, 2014, so don't delay.

The government will likely do whatever they planned to do, no matter what you write, but maybe, just maybe, if enough people give negative comments (or great ideas to make it better), they may toss us a cookie.

Here are my comments that I submitted today:

The current system is badly flawed.

If adequate protections and limitations are not included in the proposed changes, the new system will be easily manipulated so as to make it as bad, or possibly worse, than the current COP system.

It is obvious that over the last 50 years there has been significant integration and amalgamation within and proximate to the chicken SM system, as SM provides significant guarantees of higher profits and other benefits to all who are within and proximate to the chicken SM system.

This has resulted in a 33% premium price for SM animal feeds over similar non-SM feeds.  Since feed represents 60% of the total cost of production, these non-competitive, premium prices, directly and indirectly caused by SM, have a significant effect on chicken COP, and the affordability of chicken for consumers.

Excess carbohydrates in Western diets is causing or contributing to a multitude of disease epidemics, including obesity, diabetes, heart disease, cancer, Alzheimer's, etc.  Diabetes alone is projected to consume the entire health care budget by 2045 or sooner at its current rate of increase.  Note that health care currently consumes 42% of Ontario's budget.  If dietary carbohydrates are reduced, that pushes us to increase protein and fat.  Chicken could be an obvious solution to reducing dietary carbohydrates, however it isn't a solution due to the previous SM reg, and unless you are careful with how you change the reg, you will exclude chicken as a solution even more.

If an organization (and/or sister organizations) owns, controls, or passively/actively "co-operates" with hatcheries, feed mills, broiler growers, processors, and further processors, they can tweak the prices, terms, supply, and other factors for all the inputs and intermediary products and transfer so as to maximize their overall profits, other benefits, and minimize their risks.  How will the new Reg tease out the true price, or discover the best price, rather than the artificial price facade that has been constructed so as to take advantage of the regulation for private gain, while the public gets the costs and risks?

What protections will be inserted so that there is openness, transparency, and accountability in all aspects of the input data, random sampling methods, COP process, outputs, and their uses of the data?  Currently all is held in tight secrecy, and the local boards are exempt from Freedom of Information, etc., and refuse to disclose, or answer questions from the public.

Why are there no citizens, or consumer advocates on the Local Board who can help protect the best interests of the Ontario public?  The Local Boards receive a monopoly created by the public, but those Local Boards have stated that they have no duty whatsoever to the public beyond those that are expressly stated in the FPMA and regs; which are none.

The current COP has encouraged and permitted retail prices of chicken to rise far faster the the general rate of inflation.  Affordability of chicken for LICO (Low Income Cutoff, people living in poverty), minimum wage earners, and the average Ontario family has dropped by as much as 32% in the last 10 years.  Before the Local Board states what is "fair" for the farmer through COP, should they not consider what is "fair" for all of these Ontario consumers?  Does this regulation assume that the rights of 1,100 chicken farmers to a "reasonable return" supersede the rights of the 13.8 million Ontario citizens to affordable chicken that is safe and nutritious?  If so, expressly state this assumption or new government policy in the new regulation.

CFIA and University of Guelph studies have repeatedly shown that Ontario chicken is contaminated with deadly pathogens 30% to 80% of the time, and 50% of those pathogens are SuperBugs caused or contributed to by use of antibiotics in the feed and water.  Should the COP discount the value of farm gate chicken that is antibiotic resistant.

An informal survey of BC consumers recently showed that availability of free range chicken is the #1 issue for BC consumers.  Should these type of issues be used to discount or award demerits on the COP when the local board fails to adequately serve the consumer's needs?

If the chicken Board is charged with a duty to maximize the rate of continuous improvement in all aspects of the SM system (ie. retail price, nutrition, safety, biosecurity, availability, affordability, consumer satisfaction, etc.), miracles can be achieved.  Most organizations can achieve 4% per year.  What has the Local Chicken Board achieved over their 50 year history?  If the reg gives the farmers 50% of the savings/improvements achieved, passing on 50% of the savings to consumers, we suddenly are working for a shared goal.

The current way SM works, there is no requirement to improve by SM, so they become more and more fat, dumb, and happy every year.  For example, in the 1950's Canada's chicken farmers had one of the best FCR's available.  Today, the world's best is in New Zealand, with an FCR of 1.38 which is 31.8% better than Canadian chicken farmers.  How did this occur?  What is CFO doing about it?  Why isn't this top priority #1 for CFO?

Changing the regulations without considering the above is re-dealing the cards out of a stacked deck; the outcome is highly predictable, and it will be in favor of CFO and their members, and unfair to Ontario consumers.

A second problem arises from your plans to survey actual COP data.  You state that the COP should "establish a price that gives efficient producers a fair return over time."

If you use median data, 50% of the farmers will be above the median COP, 50% below.  The actual COP is likely a highly skewed statistic, so medians are more appropriate than averages.  The analogy for not using averages is the case of  the annual income of a billionaire and someone living at the poverty level, so the average is a millionaire income, which is somewhat removed from the person living in poverty.

If your COP sampling finds the median COP, those who are in the upper quartile of productivity and efficiency will likely have the lower quartile of COP.  If that tranche sub-group gains a reasonable return, all those who are less effective have a choice:  get more effective for their personal benefit as well as the greater good of all Ontario; or get out of the chicken business as they are negligent or incompetent or unable to compete.

This will help ensure the economic benefits of the SM chicken farmer are tied with the economic benefits of all consumers of chicken.

For the facts that back up all of these comments, contact me, or you can read the objective facts, research, and analysis on our Blog http://canadiansmallflockers.blogspot.ca

Small Flock Cost of Production ("COP")

The skeptics at BetterFarming wanted my COP (Cost Of Production) info, as they don't believe that Small Flockers can compete (nor should they be allowed to compete) against the SM Chicken Mafia.

I present this data on a break-even basis, so the debate of a "reasonable profit level" is removed.

Here is the data (Data Revised: 2014/05/30 11:07 Hrs.), updated from the previous version,

Figure1:  Comparison of Small Flocker Cost Of Production ("COP")
for various flock sizes

In Figure 1, the blue vertical bars show the break-even cost of the eviscerated chicken meat produced on a $/kg basis by me, a Small Flock farmer.  Break-even means there is no profit margin included in these costs.

If Ontario's millionaire SM Chicken Mafia must be allowed to earn a "reasonable profit", should small flockers be allowed to earn a reasonable profit?

If yes, what should that reasonable profit be?

Note that as the flock size increases, the cost on a $/kg basis drops dramatically.  At 2,000 birds per year, it is almost equal to the April 2014 retail prices of $4.37/kg.

Speaking with some local abattoirs that process chicken in Northern Ontario, I was informed that their small flock farmer customers generally charge $8.25/kg (ie. $3.75 per lb.) for fresh, eviscerated chicken sold at farm gate.

The red horizontal line shows $4.37/kg which is the typical April 2014 retail price for chicken in Ontario.

The green horizontal line shows the typical price for small flock chicken at the farm gate in Northern Ontario ($8.25/kg).

The purple horizontal line is the average US chicken price in Mid-West, as reported by US Bureau of Labor Statistics converted to $CA at the average exchange rate in April 2014 ($CA 0.9099 per $US 1.00) as reported by Bank of Canada.

Most economists will also compare pricing on a "marginal cost" basis.  This is where the producer is already making "X" units per year, but has the opportunity to sell just one additional unit.  What does that one additional unit cost to make?  I have not yet done that analysis.

In Figure 2, the detailed cost breakdown is provided for my operation at the average flock size of 57 birds per year.

Figure 2:   COP Breakdown for flock size of 57 Birds (Average Small Flock size in 2013, per CFO)

Note that due to the small flock size, and the long distance to the nearest abattoir that does custom poultry processing, the slaughter process adds an additional 30.03% to the cost structure.  This is a 378 km round trip for me, adding significant costs of transport, whether I carry 1 bird or 300 birds.

Hopefully this explains why I need the 2,000 bird limit if I want to supply safe, nutritious, affordable, locally produced chicken for my remote community.

Other small flockers have similar challenges, but may have significantly different cost structures.

In Figure 3 is a summary table of the various fresh, whole, retail chicken prices, and a comparison between the different prices:

Figure 3:  Summary table of retail chicken prices, fresh whole chicken, April 2014

Based on these data, will you support our cause to get the increase from 300 to 2,000 birds per year on what CFO permits Small Flockers to raise?

Cost of Production (COP), or a COP-out?

A debate is occurring on Better Farming website about Cost Of Production ("COP") and whether Small Flock Poultry Farming could possibly influence the price of chicken in the marketplace, or offer a cost-competitive product comparable to the mega chicken factories.

In a previous Blog posting, we discussed the plans of Chicken Farmer's of Ontario to revamp their method of calculating their COP.

There are many ways to determine a "fair price".  Wikipedia lists a total of 22 different pricing strategies.  I suggest all of them may be appropriate; open to be chosen depending on the seller's many purposes and goals.

Some choose to base their sale price on what competitor's are charging; then going plus, minus, or equal to that competitive price.  They assume competitors know what they are doing, or that is the best price that the market will bear; neither of which is necessarily true.

Some take the approach of pricing based on their immediate, out-of-pocket costs.  This is similar to those who drive a car and think the cost is limited to the gas consumed.  They forget or ignore the oil changes, tires worn out, wear & tear on the vehicle, dropping resale value as a higher km gets recorded on the odometer, depreciation, insurance, etc.  For a car, this is the difference between $0.10/km for gasoline alone vs. $0.50/km for the all-in cost; 5 times more than gasoline alone.

Some choose to price based on the next-best alternative.  It matters not what the actual cost is when you have a better "mouse trap". For example, a CD has the similar cost of production, whether it contains family photos of interest to a select few, music, or specialized software programs worth millions $.

Some Small Flockers see their eggs and meat production as their way of giving back to their community, just the same as being a volunteer at one of the many community groups.  Volunteers changing a "fair price" for their efforts is an oxymoron.

I challenge anybody to dismiss the volunteers in their local community as naive dupes, or to suggest they shouldn't be taken seriously just because they freely give away their time to a cause they feel is important.

Small Flock Poultry Farmers of Canada recognize this "calling" of being a Small Flocker, when we drafted Principle #13:

"Unlike the over-riding priority for maximum efficiency and profit sought by quota-based poultry farming, small flock farming is also about participation in the circle of life, an expression of life and participation in it, a spiritual practice that transcends the acts themselves; part of a higher purpose."

In the end, Small Flockers suggest that it isn't all about money.

"Not everything that counts can be counted, and not everything that can be counted counts."
                                                                                                William Bruce Cameron, 1963.

Bogus FCR takes $945 Million per year from Canadians

FCR is Feed Conversion Ratio.  IT is the #1 issue on the raising of chickens, for about 60% of the cost of a chicken is the feed used to feed that chicken.

Historically, it took 2.5 lb. of feed to put 1.0 lb. of meat onto a chicken.  With improved genetics and feed formulations, the time taken from day-old chicks to market-ready chickens has been drastically reduced, and so has the FCR.

OMAF website provides the following info on how farmers get paid for the chicken they raise:

Chicken Pricing

Chicken Farmers of Ontario (CFO) has price-negotiating authority. It negotiates the base price paid by primary processors for live chicken with primary processors every sixteen weeks. The live chicken price is determined by a formula established by the Agriculture, Food, and Rural Affairs Appeals Tribunal that includes the price of chicks, feed and producer margin. The producer margin is negotiated annually whereas the feed and chick prices are updated for each pricing period. If the two sides cannot reach an agreement, the dispute goes to final offer arbitration.

The producer margin provides a reasonable profit margin for the farmer, and pays for the farmer's operating expenses and overhead (eg. property taxes, labour, electricity, etc.).  The feed cost is defined by the farmer's feed purchase price ($/kg) multiplied by the FCR (ie. [$/kg feed] * [kg feed/kg meat]= [$/kg meat]).

 

In the Figure above, from a May 2009 report commissioned by the BC Chicken Marketing Board, A75 to A84 refers to the chicken quota production periods of approx. Jul 2007 to Dec 2008.  We can see that Ontario usually has a 1.82 FCR in the above period.  However, in the recent pricing formula use by CFO, an FCR of 2.0 is assumed.  This is an inaccurate bias, giving chicken producers an additional 9.8% above the true cost of their feed.  If feed is 60% of the total cost of raising chicken, then this unfair feed pricing boosts the cost of live chicken by additional 5.9%  for the farmers.

Of course, that 5.9% of unfair profit for farmers gets passed on to the consumer, but it's multiplied by the markups at each of the subsequent steps in the value-added chain.  Allowing for a live to eviscerated weight ratio of 0.7372 and the live farm-gate price of $1.17/kg of live chicken for Period A-116 (Feb. 14, 2013), our equivalent eviscerated price is $1.587/kg of eviscerated meat paid to the farmer.  With a recent Sarnia ON Walmart pricing of $13.54/kg (see Raube's comments), we have a total markup factor of 8.53 (ie. 853% markup from farm gate to meat counter at the grocery store).  Therefore that unfair feed pricing premium of 5.9% at the farm gate gets multiplied to a whopping $0.80/kg at the grocery store.

Since we consume about 1.182 Billion kg of chicken per year in Canada, we have an unfair chicken tax of $945.6 Million per year, just from jigging the farmer's FCR.

Unfortunately, that isn't the only place that the system is rigged against the consumer.  Be patient, my faithful Blog Hounds, we'll get to those other issues soon enough.