Smoke & Mirrors for Chicken Pricing & Provincial Allocations

Supply Management was ordered to develop a better formula for pricing of their essential food products (dairy, chicken, turkey, & eggs).  What we got was bureaucratic, impenetrable & confusing smoke and mirrors.

The old system for chicken was based on the farmer's price of buying chicks and chicken feed, plus a "reasonable" amount for the farmer's labor, overhead expenses, and capital costs.  Sounds reasonable, easy to understand, and possibly justifiable.

Unfortunately, the #ChickenMafia and their friends floated mirages and artificial prices for each of these pricing formula factors, putting in the fix to maximize the #ChickenMafia's profits.  This system of smoke and mirrors allowed the #ChickenMafia farmers to become the highest paid farmers in Canada, 21.1% higher than the median farmer's income (see Blog posting Tail Wagging The Dog ).

How did the #ChickenMafia distort a simple pricing formula to their weapon of choice for gouging the Canadian public?  Many family farms have been bought, merged and amalgamated into the fold of Big Ag. multi-national billionaire corporations.  Many other chicken farmers have become Big Ag's puppets.  Big Ag. and their feed mills own or influence the chick hatcheries, the chicken feed producers, the chicken farmers who grow the chicken to full size, the abattoirs who slaughter and process the chickens, and distribute them to the grocery stores.

That web of control and influence is called vertical integration.  That vertical integration creates a very powerful force, one that is hidden from public view, and beyond government control, supervision, or oversight.

Barrie McKenna at The Globe & Mail described the struggle over the ammeding this sneaky, stealth control of the chicken pricing formula by the #ChickenMafia.

On a related basis, Chicken Farmers of Canada are ammending their formula for which province gets to grow Canadian chicken.  Here is the guts of the new deal:

4.1 Subject to the other provisions in this MOU, if the national allocation for a period is set above base, the growth (over base portion) of the domestic allocation will be distributed using a differential growth formula that consists of the following eight components and component weighting:

A. Provincial share of the national base allocation – 45%
 B. Population growth – 7.5%
 C. Income - based Gross Domestic Product (GDP) growth – 7.5%
 D. Consumer Price Index (CPI) – 7.5%
 E. Farm Input Price Index (FIPI) – 10%
 F. Quota Utilization – 7.5%
 G. Further Processing – 10%
 H. Supply Share – 5%

These 8 factors all add up to 100% of the weighting.  At least they got that right, we now have proof positive they know how to add and do percentages.  The rest is in doubt.

Under the 2001 Federal-Provincial Agreement for Chicken, allocation of quota amongst provinces is supposed to be based on lowest cost producer.  This help ensures consumers get less expensive chicken, rather than subsidizing inefficient producers.

Will the new MOU ensure this occurs?  I doubt it.

The advantages of CFC's system is this MOU defines how all the provinces will jockey and fight amongst themselves.  At least that is a battle somewhat among equals.  Fortunately, the innocent and helpless consumers are proected from these vicious Supply Management Monsters when the MOU is implemented each quoota period.

Agri007 describes the MOU and its 8 factors, and doubts it will achieve something in the consumer's best interest.

The deck of cards is stacked against the consumer.  All the aces are secretly tucked up the sleeveof the #ChickenMafia.  The #ChickenMafia then makes a big media blitz and promotion that they are re-shuffling the deck of cards, and dealing a fresh hand to all players.  Some people might be fooled to enter their anty, trust the new dealer, and try one more time with eternal hope for a better tomorrow for Canadian consumers.

Unfortunately, no matter how many times or how well the deck is shuffled and cut, you need to realize that the aces are up the sleeve of the #ChickenMafia.  Those aces will be re-introduced to the game with great stealth at just the right time.

It's a rigged game.

The consumer has no chance to win.

End of story.

Chicken Monopoly Pricing

Have you been wondering why your weekly grocery bill keeps going up?

In part, perhaps it's caused by the monopolistic actions of Ontario's marketing boards.

Almost all of Ontario's chicken is produced in mega chicken factories.  These chicken producers, lead by their monopolistic marketing board, the Chicken Farmers of Ontario ("CFO"), must be doing something right.  It is truly amazing how chicken has taken over the Canadian marketplace since 1971 (see CFO`s Chart 4 below).  Unfortunately, it has been at the expense of farmers who raise beef, pork, and turkeys.

Source:   http://www.cfo.on.ca/documents/CFONewsletter-Winter2012.pdf

Typically, whenever an industry is able to increase its total production volume and their market share, this usually means that industry`s fixed overhead costs can be spread over a growing production volume, thus providing lower cost of production, and dropping prices for the consumer.  Unfortunately, Ontario chicken doesn't follow this logical and typical expectation.



Source:   http://www.cfo.on.ca/documents/CFONewsInsight-October292012_000.pdf

In the CFO`s Chat 1 shown above, the "A-80" to "A-114" scale on this graph refers to each chicken production cycle.  A chicken production cycle starts with the filling of the chicken factory with day-old chicks, then raising them to market weight over the next 8 weeks, then collecting the full-grown chickens and shipping them off to the slaughter plants).  Cycle A114 occurred in the Fall of 2012.

As you can see from CFO's own data, the cost of chicken on a $/kg basis has been steadily rising.  CFO says that the major factor that controls the price of chicken is the cost of the feed that the producers need to feed those chickens.  Note that the cost of chicken closely tracks the cost of the feed that the mega-factory chicken producers pay for the feeding of those chickens.

However, take a closer look.  Note that the two lines get closer and closer together as we go forward in time.  CFO drew this graph so that feed prices is above the chicken prices, perhaps to disguise the fact that their profit margin is rising.  That means that the price of chicken is slowly, ever so carefully controlled by CFO, is going up faster than the price of feed.  CFO sets the selling price for all chicken in Ontario.  It seems that CFO has applied the "boiling frog" methodology to maximize their market share of the meat market, and consumer acceptance of those rising chicken prices.   This data suggests that chicken producers aren't getting any more efficient, they just pass on their rising production costs to the consumer, and then add on top even more profit for themselves.

CFO summarizes Stats Canada statistics in http://www.cfo.on.ca/documents/CFONewsletter-Winter2012.pdf as follows:

• Over the last 9 years, consumers have suffered a retail price increase of 38% for fresh chicken.  In spite of this price increase (or because of it), consumers spent 5.9% more of their weekly grocery money on chicken in 2012, as compared to 2011.  In spite of this ever rising price increase, chicken sales in 2011 were also up by 4.3% over 2010.    (Ref:   op. cit.)

• Compare chicken to the cost of other fresh meat in Ontario`s stores.  Chicken prices have risen far faster than the price of beef , pork, or turkey.

• Chicken has the biggest share of the fresh meat protein market, 33.3% in 2012, so a rise in prices for chicken has a huge effect on the total grocery bill for Canadians.     (Ref:   op. cit.)
  
  
• In spite of Toronto being one of the largest markets for chicken, and being geographically close to CFO's major chicken producers and the major slaughter plants, in 2012 Toronto had to pay a 4.2% premium for fresh whole chicken when compared to the rest of Canada.   (Ref: http://www3.agr.gc.ca/apps/aimis-simia/rp/index-eng.cfm?menupos=1.01.02&REPORT_ID=116&LANG=EN&ACTION=promptReport ).

I wonder why?