Tuesday, March 5, 2013

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.


  1. So by your calculations, $0.80 cents/kg is added by this unfair FCR, and the farmer gets extra profit. If the farmer gets paid $1.58 per kg, then why would you focus on that when you just said that the grocery store is making a KILLING off of chicken, marking it up over 800%. Shouldnt you focus on the grocery store as the main reason why chicken prices are so high and not the farmer?

  2. You make a very good point. I felt exactly the same way as you do when I wrote this post. Some may feed that the farmer gets only a pittance compared to others downstream. I agree completely. That is why I believe the farmer needs to be fairly compensated, but not one penny more.

    Before I wrote this post, I sat here thinking about this FCR "small potatoes" issue as a side issue, a triviality. Then it dawned on me about the multiplicative factor. An extra penny by the farmer gets multiplied at each subsequent step. When I realized that, I decided to write the posting on this false FCR issue.

    The bigger problem, is that by taking more that a fair, reasonable profit, how are the farmers to hold others to account as well?

    This is similar to the problem of three kids raiding the freezer for ice cream between meals. They all know they shouldn't do it, but it tastes good, and there is support in the room for everybody to have just one more spoonful each. Before you know it, all the ice cream is gone, and nobody wants to eat their supper when Mom & Dad get home. The only way to stop this is resist getting started.

    There is more than enough blame to go around. Nobody is lilly-white. The problem with the current Supply Management system is that there are poor or no checks & balances in the system. Everybody is on the same side, except the consumer. In the end, the consumer gets stuck with everybody's bill.

    That is why the Small Flock Poultry Farmers sets the public as paramount. It's about time that Supply Management takes the hint. The public, in my opinion, won't take much more of these excesses by all.

  3. Reducing the amount the farmer gets won't make any difference in final price of the product. Processors and retailers will just make more profit and charge the same. Eliminating supply management alltogether didnt work for reducing retail prices in New Zealand or Australia. I dont think you have the right answer.
    The alternative is cheap chicken from the US that tastes like shit. Small flocks can't supply the demand, so if SM goes away or changes, who do you think will supply it?

    1. One of the problems is that the FPMA (Farm Products Marketing Act) tries to control the entire system from the farm gate end.

      I've never seen somebody put a collar on the tail end of a dog. You need to have the collar on the business end of the dog, where the teeth are. Only then can you control the dog. If you control the head end, I've found that the tail end is very well managed and is quite willing to follow along behind.

      One has to wonder whether the Supply Management system is walking their dog, or whether the dog is taking the Supply Management system for their walk. Just who is the true master?

      George Washington said, "Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master."

      I think the farmers, CFO and the FPMC need to understand the true COP (Cost of Production), as well as the replacement cost (ie. if Ontario farmers didn't supply farm gate chickens, where would the producers go to get their replacement live chickens, and at what price), as well as the price of the resulting product (ie. eviscerated chicken).

      Only by having true price discovery at all three of these points can you have a hope of setting a fair price.

      If chicken farmers reduce their prices to the bare minimum, they allow those downstream of the farmers to introduce bigger markups in the price of chicken. The producers will charge what the market will bear.

      If the farmers always acted in the best interest of the public, that still allows the uncontrolled end of the dog more room for rampage, with predatory uncontrolled profiteering by those downstream.

      It is of questionable effectiveness to have a collar and leash on the tail end of the dog.

      That begs the question: Should we control the business end of the dog, or not at all?

    2. I have a great deal od trouble trying to follow the logic of the arguement above that if supply management is gone we will be flooded with cheap horrible tasing chicken from the USA ??? when american farmers are nto raising their chicken any different then the way supply managed farmers here in Canada are, so i guess supply managed chicken from Ontario farms must taste like and i quota "shit" as stated by the persons comments above. fear mongering, is all that is saving supply management. With the logic that with out supply management we will have no farmers is so primary. SO why do we have any beef, sheep, goat, or grain farmers here in Canada, if the USA is such a steam roller, we shouldnt have a single fnon supply managed farmers left, the truth is that the USA's economy is in such a horrible situation that each year they have less and less money to divert into the USA farm bill.

    3. There are many Canadians who believe that US chicken is terrible as compared to Canadian chicken. I'm not so sure. In 2011, Canada imported 159 million kg of chicken, most of it from good 'ol USA (74%), followed by Brazil, Thailand, Chili, and Israel. If it was that obvious of a difference between US and Canadian chicken, nobody would buy it.

      Small Flock Poultry Farmers believe that Canada should be self-sufficient in supplying chicken for ourselves. We also believe that we should be exporting our Canadian chicken everywhere in the world.

      Unfortunately, Canada is a very poor chicken exporter. Of the 7 top chicken exporters in the world, Canada exports just 1.42% of the total, putting us in 7th place out of 7.

      What's stopping Canada from being #1? To me, it seems the the chicken processors are quite happy raping the Canadian public, and are so comfortable in the fat profits derived from this, they have no hunger or interest to look farther afield.

      Transitioning from our current supply management system towards something better will not be easy.

      When New Zealand gave up supply management for their dairy business, they were a insignificant speck on the world's dairy scene. It took 6 long years to rebuild the dairy industry, curing the "fat dumb happy" slovenly habits that had become habitual. After that 6 years in purgatory, the New Zealand dairy took off, and is now the #1 dairy product exporter in the world. They learned their lessons the hard way.

      Of course, New Zealanders now pay world prices for dairy products, rather than the government tax subsidized prices previously. I would suggest that every time any government touches something, they add a significant overhead cost. For a government to tax the public, then send some of those tax dollars back to the dairy industry to subsidize the cost of dairy products adds additional costs above what would be the world-priced products.

      There has been significant consolidation of the New Zealand dairy industry. That is usually not good. In a stable competitive market, there are usually only 3 significant competitors. I suggest that governments must prevent excess consolidation (ie. mergers and acquisitions) by anti-monopoly (anti-trust) legislation such as Canada's Competition Act.

      Canada first passed that anti-trust legislation in 1889, one year before the US passed the Sherman Act, the US equivalent. See for a summary of Canada's Competition Act.

      We learned back in the 1600's that monopolies are bad policy, and need to be avoided like the plague. Unfortunately, sometimes we forget this, and have to re-learn our lessons, just like the current Supply Management System issues we face today.


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