Chicken: Gorilla or Guerrilla

There are battle lines forming between the Chicken Guerrillas and the Chicken Gorillas.  You'd better take cover before the battle starts.

I previously Blogged in March 2013 about the hidden Gorillas in Ontario chicken coops (see Blog posting Why are there Gorillas in Ontario Chicken Coops?).  Those are the super huge chicken factories in Ontario, likely owned, controlled, or aligned with the multi-billion agri-food corporations of the world.  I estimated that there are 142 gorillas in Ontario's chicken coops who hold 39% of Ontario's market share, and 69% of the HHI ( Herfindahl–Hirschman Index), a measure of the concentration of control, often used by governments to decide upon anti-trust breakups, or to stop mergers so as to protect consumers from monopolies, oligopolies, and unfair trade practices.

I had to look at the effect of Small Flockers getting relief from the choke hold of the #ChickenMafia, by gaining a 2,0000 bird/yr limit instead of the current 300 birds/yr we are currently limited to.  What impact would that change have on the competitiveness in the Ontario chicken marketplace?  Here's the answer.

Figure 1:   Market share %HHI scores for current situation (57 birds/yr for Small Flockers),
versus the proposed 2,000 birds/yr limit.  The quota-based chicken farmers are sub-divided
into 5 classes based on the size of their quota ownership.  The Small Flockers are added as
the 6th class.

Figure 1 shows the market share %HHI scores for the current situation (57 birds/yr for Small Flockers),
versus the proposed 2,000 birds/yr limit.  The quota-based chicken farmers are sub-divided
into 5 classes based on the size of their quota ownership.  The Small Flockers are added as
the 6th class.  Producing just 57 birds/yr, the Small Flockers are shown to have virtually no impact (ie. 0.01% HHI, the blue curve in Figure 1) on the chicken market in Ontario; exactly what the #ChickenMafia wants.

If you raised all Small Flockers to the current legal maximum of 300 birds/yr, it goes from 0.01% HHI to 0.25% HHI; virtually the same effect:   NONE!

If Small Flockers are allowed up to 2,000 birds per year, then the Small Flocker market impact climbs to a whopping 10.17% HHI (ie. the red coloured curve in Figure 1).  At 2,000 birds/yr, Small Flockers start to have some meaningful impact in the Ontario chicken markets, about the same as the first 5 classes of the quota-based chicken farmers.  Of course, the market share of the 142 gorillas in the Ontario chicken coup drops from 63.84% HHI to 57.34% HHI; an 11.3% drop.  They're still gorillas, and still completely control the Ontario chicken industry, but their power has been slightly reduced.

The 142 chicken coop gorillas are just 14.02% of all quota-based chicken farmers in Ontario, or 0.88% of all chicken farmers when we include Small Flockers.  However, never doubt that these 142 gorillas control the entire chicken industry in Ontario, including the Ontario Chapter of the #ChickenMafia.  I suggest that these gorillas use their power and influence to control the whole system to their personal advantage; feather-bedding their own nest by improper use of the sacred trust powers that were delegated to them by the Ontario and Federal governments.

When these governments were designing the Supply Management system, why didn't they include sufficient checks and balances to protect the public, and all the other chicken farmers, from the birth of these gorillas in Ontario chicken coops?

I suggest it's a good thing for the citizens of Ontario to reduce the strength of these 142 gorillas.  I suggest its good for the 76% of quota-based chicken farmers to put those gorillas into a cage so they can no longer boss around the majority of the quota-based chicken farmers.

I suggest that CFO be given a Directive, from either OFPMC (Ontario Farm Products Marketing Commission), or the new Ontario Minister of Agriculture Jeff Leal that the concentration of market power by the gorillas, as measures by % HHI or some other similar basis, be systematically reduced by limitation on ownership of quota.  For example, when new quota is being given out, everybody by the gorillas should get some.  A new Regulation is needed to prevent another chicken farmer from becoming the next gorilla by accumulating additional quota in the marketplace.

Will the government act to allow Small Flockers to become a "wild card" in the chicken marketplace?  Will they take the necessary steps to cage the gorillas running loose in Ontario's chicken coops?

Only time will tell.

Attacking a gorilla head-on risks life and limb.  Fortunately, a Canadian, Bert "Yank" Levy (1897 – 1965) tells us how to train as a guerrilla, and be effective at limiting or removing these oppressive invaders from within our midst.  Bert wrote the book on Guerilla Warfare

, and has appeared on the cover of LIFE Magazine (see pages 40 - 45 for his story).

If the government is unwilling or unable to protect the public from these gorillas in Ontario chicken coop, does the public need to learn and apply Bert's methods as Chicken Guerrillas?








.

Canadian Feed Mills

There was an interesting post on Better Farming's website yesterday:

Thank SM for the feed mills we have!

Lets face it, without Supply Management there wouldn't be near the number of feed mills we have.
They cater to the people that pay their bills, its that simple!

Sorry, but I couldn't let that stand without a response.  Here is my response:

SM Generated Feed Mills?

If I understand your comments, you seem to feel there would be fewer feed mills if we didn't have SM (Supply Management). Please explain your logic in the greatest of details.

Based on research that I have done (most on chickens, some on eggs, a tiny bit on other SM commodities), which is fully described on SFPFC's Blog, Canada has only 1.4% of the international chicken market for OECD nations. The US exports about 18% of its chicken, but SM holds us back from exporting much of anything.

Our Canadian domestic prices for chicken are 2 to 3 times higher than prices in the international market. Virtually nobody would buy our Canadian chicken exports at the price that Canadians are forced to buy them at.

If Canadian SM producers were to drop their prices to match the prices of our international competitors, we could gain significant market share on the international markets. However selling internationally at prices that are half to one third of domestic prices is the definition of "dumping" which is illegal under NAFTA and WTO and GATT and other trade agreements.
If SM didn't exist, Canadians would likely pay a lot less for their SM products, as I doubt the rest of the world would suddenly start charging 3 times more so as to match crazy Canadian prices.

If we worked hard, we would eventually regain our competitiveness in SM products (ie. in the next 20 years, for we are close to invalids in SM products today, compared to the rest of the world).

Once we regained our competitiveness, continued hard work could eventually earn us up to 50% market share for SM products in OECD international markets.

With 50% OECD international market share, we would have to raise 5 times more chicken than what we currently raise in Canada today.

If we raised 5 times more chicken in Canada, I would assume there would be logic in having that huge extra demand for chicken feed produced in Canada, close to the source of the input crops, or close to the end user of the feed produced. That would mean a significant increase in operating capacity of current feed mills in Canada, or the building of many new feed mills, perhaps up to 5 times more than what exist today.

Therefore it would seem that SM has killed off up to 80% of the feed mills that would have been built (or continued to exist) than under a non-SM system.

Oilseed and grain farming is the largest farming income producer in Canada, about 32% of the total farming income for Canada. That's big GDP for Canada. I think these grain+oilseed farmers would welcome the opportunity to grow and sell 5 times more grain, if they could. Unfortunately, SM will never allow that opportunity to be realized. SM farmers have a death grip on the throats of most other farmers.

If you (or others) have other facts and logic to support your prior statement, please share it with all of us so we can learn and better understand.

If you don't supply your logic, I believe it is fair to assume that you accept the above data and logic, and have retracted your prior statement.

Glenn Black
Small Flock Poultry Farmers of Canada

We'll have to wait and see if we get any response, or additional facts that support alternative viewpoints.

Food Factory For Fowl

If you want to raise chicken, you have to feed them.  At my farm, I do free range.  The girls get let out of the chicken coop most days by 1:00 PM so they can make their appointments as the dust bath beauty parlors all around the coop.  When they come out, they are free to grab a fly, worm, or bug to supplement their diet.

If you have a chicken factory with an average size flock of 29,000 birds, you don't have that option.  If you were silly enough to open a really big door, by the time they all got out of the barn, coffee break would be over, and they'd all have to come right back in again.  There wouldn't be time to find a bug, let alone eat it.

Almost all of the commercial growers buy their feed from a feed mill, rather than growing and making their own feed.  So who do they go to to get chicken feed?

You may have seen some very fancy trucks going here, there, and everywhere in Ontario.  I understand they carry a lot of chicken feed.

Wallenstein Feed transport truck.
Photo courtesy of Doug McKenzie at http://www.hankstruckpictures.com/dm_fergus2004.htm

Five axle trailer, all aluminum body, aluminum wheels on the tractor, chrome everywhere, with the fancy light accessory package.  Nice!  How much do you think one of those babies is worth?  Obviously, profits are good to be able to afford an entire fleet of these kind of trucks.

Could this be a major factor in the high cost of chicken in Canada?  Note the previous posting on the mechanism for passing rising feed costs directly to the chicken consumer.

This one is owned by Wallenstein Feed & Supply.  Wallenstein is a family-owned local feed mill, unlike those big nasty trans-national competitors like Cargill, Nutreco, Ridley, and Viterra.  Wallenstein claims to be the #1 feed mill in Ontario for chicken feed, with 25% market share.

Source:   2013 Alltech Global Feed Report
http://www.alltech.com/sites/default/files/2013-feed-tonnage-report.pdf

According to their annual financial report, Animal Nutrition Canada claims 23% of the overall Canadian feed market share.

Broiler feed is about 0.96 Million MT/yr for Canada.  In 2011, Ontario produced 3333.236 Million kg eviscerated chicken, while Canada produced 1,023 Million kg, so Ontario did 32.57% of the Canadian total.  Assuming the FCR is the same across Canada, ON broiler feed consumption is 0.3257 * 0.96 * 10^6= 0.3127 million MT of broiler feed for ON.  With a Wallenstein market share of 25% in ON, they would have produced about 78,168 MT of broiler feed in 2011.

Rule of Three & Four
A stable competitive market never has more than three significant competitors, the largest of which has no more than four times the market share of the smallest.

This means that market shares of these 3 market leaders tend to be in a ratio of 4:2:1.  Generally, all of the other competitors beyond the top 3, will hold between 0% to 10% of the total market share.  Based on this heuristic, the following graph shows the resulting market share:

This would predict that the market leader should have a market share of 51.2%, not the 25% that Wallenstein currently claims.  Why the difference?

The Rule of Three and Four applies to stable, competitive markets.  It generally does not predict when these two pre-conditions do not exist.

There is a huge consolidation going on around the world.  Most feed companies are using every dollar of profit, and every dollar they can borrow to buy their competitors.  One example is Parrish & Heimbecker (P+H) with head office in Cambridge, with 11 sites across Canada, who has been on a buying spree as well.

I would suggest that the mergers and acquisitions will continue at an ever increasing pace until the 51% is achieved or exceeded.  It will only be stopped when Canada's Competition Bureau steps in to stop it from further consolidation until there is just one feed gorilla left who owns all of the market.

Supply Management monopoly attracts the formation of surrounding monopolies, the feed mills being one of them.

I'm taking bets as to whether the winner will be Wallenstein, P+H, Cargill, or a foreign invader.  Place your bets.

Will Wallenstein eat its competitors?  Will a competitor eat Wallenstein?

It's only a matter of time, as the sharks circle their victims.

Fair Feed For Farmers?

A total of 19.642 Million metric tonnes of animal feed were produced in Canada in 2012.

The Dairy industry is the biggest consumer of compounded feeds, approximately 50% of the total feed tonnage.  Broilers are 4.9%, layers are 4.1%, so together the chicken fed consumption is 9.0% of the total feed consumed in Canada.

The animal feed industry in Canada is going through many changes.  Mergers and acquisitions are the name of the game today.

Animal Nutrition Canada claims to have the largest share of the feed production market, 23% of the Canadian total.  They sell under the brands Shurgain, Landmark, Nutreco, Mapleleaf.

Other major feed players are:

• Ridley, with Masterfeeds, AGP Co-op
   
• La Coop Federee
   
• Cargill, with Provimi, Hi-Pro, Purina, Nutrena
   
• Viterra
   
• Glencore

I understand that Wallenstein is one of the largest chicken feed suppliers in Canada, but have been unable to confirm this as of yet.

Typical feed cost for chickens is about $384 per metric tonnes ("MT").  As calculated previously on this Blog, if chicken feed has increased by 60% during the same period that cat & dog food increased 20%, that means that there is an excess charge for chicken feed of  $96/MT.

With poultry eating a total of 2.12 Million MT per year, that is a total gouging of $203.52 Million per year.  The farmers gladly pass those excess costs onto their suppliers, who mark it up further as it works its way down to the lowly consumer.  Assuming 40% markup at the producers level, and another 40% at the wholesale/distribution level, the gouging approaches a total of $398.9 Million per year.

Poor consumer.  When will we get relief from all of this economic sludge being poured down our throats?