Sunday, November 17, 2013

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


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    1. Thanks for your feedback.

      So far, we don't get many comments from Blog readers, but the ones we do get are welcome and appreciated. I find significant intelligence behind and within the comments we receive.

      As to your concern about "brain dead" remarks, you are the only comment here on this posting so far, so you must be referring to what I have written.

      I am unclear what part of this posting that you disagree with. If you can, please describe fully, and suggest an alternate that you are more happy with.

      We have a Twitter ( @smallflocker ), Google+ ( ), and Facebook ( ) linkage.

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