Wednesday, June 10, 2015

Bird Flu Bailout

Bird Flu is expensive.  Who gets stuck with the bill for all of that biosecurity misfortune (or negligence)?

I previously outlined the significant questions that exist on Bird Flu and the Chicken Mafia's response.  Consumers eventually, and ultimately, get stuck with the bill for the negligence of chicken factory farmers.

How much will it cost consumers?

Nobody knows for sure.  Agri007 reported:
"United States Agriculture Secretary Tom Vilsack said this week that the virus is going to cost the federal treasury $410 and said the costs  could mount to $500 million."
Half a Billion dollars isn't a bad start.  Of course, that's just the government's share for the condemned birds ordered to be destroyed.  The total cost is much larger.  There are costs to dispose of the dead carcasses, to clean the barns and sanitize them, the losses from business interruption.

There will also be raising of prices as a market shortage of chicken and eggs spreads, and much more.  For example Agri007 reports
"The U.S. price for eggs for processing has risen from 65 cents to $2.35 a dozen in the last five weeks."
That's a  361% price increase.  Ouch!

Let's assume that the total cost in the US will be $1 Billion.  Since they are 16 times bigger than the Canadian system, the cost for Canada is roughly $62.5 Million for 2015.

So how do Canadian consumers get stuck with the bill?

First of all, where does the government get their money to pay compensation for biosecurity negligence by SM farmers?  Of course, all of it comes from taxes paid by taxpayers.

Next, the Chicken Mafia has covered their bets by forming Poultry Insurance Exchange Reciprocal of Canada ("PIERC") in 2008 or there abouts.  This is a reciprocal insurance company that provides insurance benefits to the Chicken Mafia when they get hit with catastrophic losses from Salmonella and/or Bird Flu.  In Jan. 2010,  BF reported that PIERC planned to expand their coverage to Avian Influenza around Mar. 2010.

The current situation of this insurance and PIERC is hard to determine.  PIERC seems to have been registered as a corporation doing business in most or all provinces across Canada, but appears to have let lapse (ie. surrender) their business registration and/or licensing to offer insurance in Alberta in 2011, Nova Scotia in 2011, and has been refused a license to sell reciprocal insurance in Quebec as of July 2013, and become quite pissed off about that fact.

PIERC is off the books and running in stealth mode for the Chicken Mafia, where secrecy is king.

So we don't really know for sure, but here is some speculation sprinkled with some assumptions.

Each provincial Board has (or will) mandate each CAFO chicken factory farmer to comply with the Board's  biosecurity standards (as poor and superficial as those standards may be), and in return have mandatory coverage by the insurance policy issued by PIERC to that Board on behalf of each chicken farmer.

Why make it mandatory to have insurance?  The Chicken Mafia says it is made mandatory so as to ensure rapid recovery if disaster strikes.  In reality, insurers like this mandatory coverage, and insist upon it (just as they did for car insurance in Canada, and US Health insurance under Obamacare) so that profits are maximized, the insured pool is maximized, and risk is allegedly spread over a larger base so that the Law of Large Numbers applies (ie. fewer anomalies).  What really happens is that the negligent hide better in a larger forest, escaping easy detection, maximizing Moral Hazard.

Farmers pay a higher levy fee to their Board for every chicken or egg raised, to pay the insurance premium to PIERC.  That insurance premium becomes a cost of doing business for the farm, and is therefore used to calculate overhead costs that get added to the "reasonable" costs that get charged for farm gate commodity pricing.  That higher farm gate price gets marked up at each step along the way as the chicken flows through the Chicken Mafia system towards consumers.  In the end, everybody along the supply chain makes a little more profit due to the insurance premium paid on behalf of the farmers, so consumers end up paying many times the cost of the insurance policy cost.

When biosecurity disaster strikes, as it has in 2015, the negligent (or unlucky?) farmer submits a claim to CFIA and PIERC and gets fully compensated for their negligence (or very close to full compensation).

Insurance, especially insurance that has full compensation (or close thereto), has significant "Moral Hazard", where the guilty will reap the benefits of their negligent acts (ie. less work, saving a few pennies in labour and materials by skipping necessary repairs and improvements, etc.), and are shielded from the consequences of their negligent acts.

PIERC likely purchases re-insurance from other insurance companies.  That means when PIERC has a claim (as they do in 2015), other insurance companies have to pay for some of those losses.  Those other insurance companies see their expected profits disappear and their costs rise from Bird Flu claims, so they have to boost all of their premiums charged to consumers for car insurance, fire insurance, home insurance, E&O professional insurance, etc..  Again, consumers get dinged for Chicken Mafia negligence.

If Chicken Mafia's loses for 2015 are too big in BC and Ontario, PIERC will likely send a bigger premium bill for the following year to all Chicken Mafia Boards all across Canada who are a part of PIERC.  So even if one province has an excellent and competent Chicken Board and diligent farmers who have excellent biosecurity protocols, consumers in that province will be forced to pay their "fair share" of the negligent cost of doing business in the offending provinces.

If the Bird Flu losses are still not yet paid, the Subscription Agreement signed by each Provincial Board likely says that PIERC can make them to ante-up to cover all of the additional losses.  Again, those costs get sent to consumers.

There is no winning for consumers in this biohazardous deal.

What should happen to save the consumer from these Moral Hazards is:
  1. Independent, third party risk management experts should regularly assess the biosecurity standards of each province based on accepted risk management techniques such as HACCP, FMEA, FTA, 8D, 5Y and similar techniques.
  2. Independent, third party auditors should regularly assess each farm for compliance to their province's biohazard standard, and assign a RPN (Risk Priority Number) based on maximum probable loss, probability of an incident, severity of the incident, and prior detectability of the precursors of that incident.  The premium to be paid by each farmer will be based on a sliding scale for that RPN score, and the farm's actual loss record.
  3. The amount of insurance is limited to 66% to 90% of the total cost, with the use of co-insurance, deductibles, and similar techniques so that the negligent farmers get a significant financial penalty for causing or contributing to an incident occurring.
  4. The insurance premium is disallowed from consideration as an operating costs used to determine the farm gate price.  This ensures there is no indirect feed back mechanism to consumers.  If the farmer can lower his insurance premium by biosecurity improvements, he gets to keep all of the savings he deserves.  If not, the premium is money out of the farmer's pocket with no compensation from consumers.
Until this is done, Bird Flu and other biohazardous incidents will likely continue, and consumers will continue to be raped by any negligence and/or corruption caused by the Chicken Mafia inside Canada's dysfunctional Supply Management system.


  1. More likely they became self insured but still pass it off as an expense

    1. Thanks for sharing your comments.

      Yes, self insurance is a possibility, but that would be free from government handouts when disaster strikes. The Chicken Mafia prefer government handouts, so this scenario is less likely.

  2. I'm sorry but that's the way it is


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