Wednesday, April 22, 2015

Picking Canada's COOL Chicken

Yesterday, our Blog examined the top 6 countries from whom Canada was importing chicken (USA, Brazil, Thailand, Chile, Germany, and Israel).

There are 196 countries in the world today.  Of those 196 countries, 47 of them produce broiler chickens.  Of that 47, only 28 countries export chicken to other countries.

In statistics, you can calculate all possible permutations of choosing the top 6 countries from 28 available countries.  If you have an Excel spreadsheet handy, the formula is "=PERMUT(28,6)".  Excel tells us there are 271.3 million different possible permutations.  With only 6 chances out of 271.3 million to be a chicken supplier to Canada, that is pretty slim odds; pretty close to zero.  How then, did these 6 particular countries get chosen as Canada's preferred chicken suppliers?

It takes a lot of homework to successfully buy chicken from a foreign suppliers.  Thousands of things could go wrong, resulting in sea containers of seized chicken rotting at the Custom dock due to a hold by Canadian Food Inspection Agency ("CFIA"), or late chicken, or no chicken.  If you have something that is working reasonably well, you will do just about anything to keep it working for one month longer.

That is why you need to choose a foreign partner very carefully.  Currency instability can destroy a beautiful thing overnight.

Figure 1:   Foreign exchange rates between Canadian $ and the currency used
by the Top 6 countries exporting chicken to Canada. 
The graph above (Figure 1) is data from the Bank of Canada on currency exchange rates for the last 10 years on the Top 6 countries currently exporting chicken to Canada.  To simplify the comparison, all data is indexed to the exchange rate that existed as of April 12, 2005 (ie. set to 1.0).  From that date forward to today, we can see the relative change within that currency paired to the Canadian $, as well as between the currency of all these trading partners.

On Nov. 6, 2007 the CDN:US exhange rate hit an all-time high of 1.3372 making US chicken the cheapest due to favorable currency exchange rates (see the Black coloured line in Figure 1 above).

On Aug. 5, 2008, the CDN:Brazilian Real exchange rate hit an all-time low of 0.72 which made Brazilian chicken more expensive than any other time in that 10 year period.  Since then, the exchange rate has grown steadily, so that Brazilian chicken is cheap, and getting cheaper all the time.

Figure 2 below shows the overall statistics on these exchange rates during this 10 year period.

Figure 2:   Table of statistics for Foreign Currency Exchange rates with
Canadian $.  The Coefficient of Variation (CV%) varies between 4.6% (Chile),
to a high of 10.14% (Brazil).  This is remarkably stable over a 10 year period.
We suggest that this stability, and the excellent profitability derived by chicken
brokers keep them coming back for more.
The stability of these exchange rates over time means these are excellent trading partners.  When one goes up, likely one of the other 6 suppliers will go down.  By sending 6 emails asking your suppliers for their current prices, you are sure to find one of them significantly cheaper than the other five countries.  That is whom you place the order with this month.  Next month, you repeat the same process, and choose a different winner to ship you chicken.

Notice that China isn't in this list of chicken suppliers.  Isn't everything that China produces the cheapest in the world?  A broad assumption that may not be true for chicken.  China is the 5th largest exporter of chicken in the world.  So if China is a huge exporter of chicken, why isn't China one of the Top 6 for Canada?

Let's take a look at China's exchange rates with the Canadian $.

Figure 3:  China's Foreign currency exchange rate with Canadian $.
For the past 10 years, the Canadian $ has been losing ground against
the Chinese Yuan, meaning that chicken is becoming more and more
expensive.  Add to that China's questionable quality (real or perceived),
and China becomes a poor choice for supplying chicken to Canadians.

Based on Figure 3, China is a poor choice for supplying chicken to Canada.  I suggest this is a primary reason that China is not in the Top 6.

Canada's Top 6 chicken suppliers.  The choice is made based on maximum profits and minimum frustration for the millionaire Chicken Mafia.  It has little or nothing to do with protecting the Canadian public, or doing what's in the best interest of the public.  It's all about maximum profit and minimum frustration for the millionaire Chicken Mafia.

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