Monday, May 12, 2014

Canadian Chicken At Risk?

They signed my petition, but added that they support having Canadian chicken to feed Canadians.  They were afraid that my actions threatened to open the flood gates of foreign chicken into Canada, sweeping away Canadian farmers.

Good question.

Legitimate fear?

Is there any substance to this potential risk?

I have previously explained that under WTO (World Trade Organization) Treaties, Canada is required to allow 7.5% of the previous year's domestically produced kilograms of chicken  to enter Canada at a reduced import tariff, which is called TRQ (Tariff Rate Quota).

I have also previously Blogged about IREP chicken that is imported for the alleged purpose of processing that chicken in Canada, then re-exporting it out of Canada as a value-added product.  I say alleged, because many tonnes of that chicken gets "misplaced", mysteriously disappearing inside Canada, and is never exported.  This is cheap, US chicken (or other cheap chicken) that disappears; chicken that's 300% cheaper than domestic chicken.  The oppression and abuse of monopoly-priced chicken enforced by the Chicken Mafia ensures there is a white hot market for cheap US chicken in Canada, just like smuggled cigarettes.

Cheap chicken is the same as cash, a fungible asset. It's almost as good as cash, and easily disappeared for quick, un-traceable cash, if you know the right people.

When you add up all the imported chicken, we consume about 75% domestic chicken, and about 25% imported chicken.

As chicken prices drop with the Federal government's lowering of the non-TRQ import tariff, consumption of chicken will increase.  If the price of chicken in Canada falls, perhaps the chicken farmers, or the producers no longer want to participate to the same degree as they previously did (ie. it's no longer worth their while to produce chicken). This may mean that the amount of domestic chicken produced will drop, and the resulting shortage in chicken available will stabilize prices.  In the short term, this may increase chicken prices more than before the non-TRQ tariff reduction occurred.

In the alternative, the Chicken Mafia may have a change in heart, and support the non-TRQ tariff drop.  As market prices of chicken drops, they make it up on quantity sold.

If the government doesn't get scared and stop, but continues to lower the tariff on a steady basis, eventually it will become of greater and greater interest to Canada's chicken farmers to produce more chicken to feed the lowers prices and the greater demand.  If Canada's Chicken Mafia refuse to step up and serve the need, eventually the import tariff will attract foreign chicken to come to Canada and serve the domestic need.

I would prefer that Canada's Chicken Mafia choose to continue in their full participation, but it's a free country.  They're big boys.  They can make up their own mind.

If Canada's Chicken Mafia attempt a "work to rule" approach to frustrate the dropping non-TRQ tariff rate, eventually foreign chicken suppliers will be able to significantly with increased imports into Canada.  As a foreign brand, they need to gain consumer confidence and market share.  The incumbent brands have the advantage, so foreign brands will likely drop their price below the current market price.  Chicken price wars have just started.

Let's take a monopolistic price gouging example

Soon after Dupont invented nylon in  Feb. 1935 it soon became the most profitable product in the history of the company, totally changing the company's focus.  Dupont tightly controlled the market for nylon, and the market price.  Many felt Dupont was price gouging its customers.  For the next 15 years of the patent, Dupont gained between 33% to 50% of its profits from just one product:  nylon.  When the patent ran out, competitors started manufacturing nylon substitutes, and the price dropped sharply.  Realizing that all of DuPont's competitors had built their own nylon manufacturing plant in preparation for the ending of the patent, DuPont finally dropped the market price for nylon in the last few months before the patent ended.  By that time, it was too late.  The competitor's plants were built and ready to go, no matter what DuPont did to fiddle with the price at the last second.  Most customers were upset at having been gouged for 15 years, and defected in drove's to DuPont's competitors.  DuPont's monopoly and unlimited power on the nylon market came to an end within hours after the patent expired.

Perhaps the Chicken Mafia can learn a lesson from DuPont.  Price gouging of consumers creates many long memories, ready for revenge when the chance comes.

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