What changed first, SM or the Tariff?

Last June, Susan Mann of Better Farming wrote about Al Mussell's published report (Sr. Research Associate at George Morris Centre in Guelph ON) suggesting that Supply Management ("SM") didn't need to be scrapped, we just need to allow greater access to the Canadian markets to satisfy our trade partners under WTO (World Trade Organization) and/or TPP (Trans-Pacific Partnership).

The article says that foreign commodity producers want access to Canadian markets, the second largest in the TPP negotiations.  I agree.  However importers don't have access to all of Canada's market.

For chicken as an example, foreign chicken can enter Canada at an import tariff cost of 0% (NAFTA) or 5% (WTO) under TRQ. TRQ quantities are limited to just 7.5% of the total kg consumed in Canada.  After that miniscule market access is exceeded, importer must pay a 285% import tariff cost.

100% of the 2nd largest market is significant, and worth going after under TPP and WTO.  7.5% of the second largest market is more trouble than its worth, for you need bilingual labels, learn all of the intricacies of the Canadian market, form a Canadian supply chain, etc.

All of the above keeps Canadians paying for the most expensive chicken meat prices in the world.

The farmers get some of that gravy as COP (Cost of Production), but the vast majority of those price gouging profits go to others up & down the food chain (ie. chicken feed companies, processors, supplementary processors, distributors, retail, etc.).  Gravy train for everybody, except the consumer, who pays for it all.

If the 285% import tariff was reduced, more foreign chicken would soon enter Canada, and everybody would take a hit to their gravy train.  Eventually, as everybody in the chicken supply chain got hungrier, retail prices would drop.  Anybody working under the arcane rules of SM would be at a considerable disadvantage, and they'd start to drop like flies, or be bought up by foreign suppliers for pennies on the $, because an asset caught in SM's web of fossilized bureaucracy is close to worthless as the import tariffs drop farther & farther.

Dropping import tariffs without first removing SM is a good way to kill the entire domestic chicken production system.

I think we need food security first & foremost, which means we want to ensure we can feed ourselves, even when imported chicken is no longer available.



Same logic applies to all other SM commodities.

That means we must keep the 285% import tariffs on chicken until something else is changed first.  I wonder what that something else will be?  Do you think it might be SM?

Off to the Tribunal we Go!

Slowly but surely, we are moving on my complaint against Chicken Farmers of Ontario ("CFO").

Quick Recap

Feb. 5, 2013     I filed my complaint with CFO
Feb. 25, 2013   CFO thanks me for my feedback.
                         To me, it seems CFO has filed it in the round filing cabinet on the floor (ie. garbage can)
Feb. 25, 2013    I request hearing of my complaint before CFO Board
Mar. 1, 2013      CFO acknowledges my request, Board will consider my request
Mar. 21, 2013    CFO Board decides to decline hearing, and waive their right to hear my complaint
Mar. 26, 2013    I send letter asking FPMC to intercede on my behalf with my complaint against CFO
May 23, 2013     FPMC refuses to intercede with CFO, refers me to OMAF Tribunal
June 6, 2013      I send email to Tribunal asking for information on how to proceed with complaint.

Four months of bureaucracy and delays.  It seems Canada grows some of the best bureaucracies and red tape in the world.

I'm going to need lots of help & advice on this Tribunal.  I assume we have one chance to get it right.  I've never done a Tribunal before so I'm looking forward to suggestions from all the jailhouse lawyers out there to advise & guide me on how to make this effort successful.

Clarification of non-SM Product Auctions

In a previous Blog post, I outlined our draft plan for ending Supply Management ("SM")for all of Canada.

I proposed a truncated k-double auction.  By the number of inquiries I have received on this, it appears I need to supply some more details on this proposal.

When doing a double auction, there are a few optional methods that need to be specified.  My suggestions are as follows:

1. Everybody who submits a bid or ask will pay/receive the same price if cleared.  For somebody who was willing to pay a lot more, they end up getting it cheaper than they hoped for.  If someone bid too low, their bid won't be accepted as it was below the strike price that everybody enjoys.  If someone was asking for a low price, they may end up getting a lot more than what they had asked for.  If they asked for too high a price, their asking may be above the strike price, and they won't be selling their commodity during this auction.  This system minimizes the need for guessing what everybody else is bidding.
2. I suggest there will be multiple auctions for each quota period.  This enables producers and processors to make a recovery play if their bid was way off in the previous round.  There can be a problem with multiple auctions.  If everybody plays nicely, there won't be a problem, they re-set their bids (if they so choose), and they can get their commodity bought or sold in the next round.  However, some may think they have the other side over a barrel. For example, a producer might figure than he can leave his chicken barn empty if he has to, but the processing plant absolutely MUST have a supply of chicken, so the producer significantly jacks up his asking price for a second round of auctions.  It can tend to polarize the remaining bids to the extremes of the pole, rather than bringing buyers and sellers together.
   
   I therefore suggest that the first auction is only for within your home district.  If you are not located in that District (buyer or seller alike), you cannot put in an offer.  For Chicken Farmers of Ontario, there are 9 Districts, and each producer and processor would submit their bid/ask to the auction for their home district.
   
   

   

   District Map for Chicken Farmers of Ontario

   If they were not totally successful in buying/selling all that they needed, they would have a second chance in the province-wide auction.  With more players, if they wish to play games with their bids, they will most likely be left sitting on the sidelines with no transactions in the next quota period.
   
   A third auction can be held for those who still want to sell/buy, adding in additional buyers/sellers from within Canada but from a different province (ie. inter-provincial bids).
   
   A final auction can be held for those who still want to buy/sell that would include inter-provincial as well as foreign bidders.
   
   For transportation purposes, all winning bids/asks will be matched at their strike price so as to minimize transportation costs, as previously defined.
   
   If someone failed in all 4 rounds of auctions, they weren't trying hard enough, or they need to find a new career.
   
   Automated by software on-line, each auction could be done in 15 minutes.  Time would be allowed between auctions for people to reconsider their positions, seek advice, and to type in their chosen bids.
   
   This system will give preference to domestic production, if the buyers & sellers so choose.  If the local suppliers or producers are bad actors, customers will skip that auction and go to the next.  If the end, the customer gets what they want.
3. Some commodities are done in batches (eg. broilers, turkeys).  Other SM-commodities have a continuous flow (eg. milk, table eggs), which cannot be easily shut off and re-started.  This could  cause a market imbalance between producers and processors.  A milk plant can more easily clean out the plant, lay everybody off, and wait for better milk prices, or better auction results.  The farmer isn't so lucky.  To make things more balanced, it is suggested that long term "take-or-pay" contracts could be established for each commodity, for example a 3 to 5 year production quantity, well in advance of the start of the start of delivery.  When that is close to expiry, the farmer can decide to retire that cow, or continue milking her and sell her milk on the more lucrative spot market (ie. month by month).

Lots of opportunity.  Lots of choices.That's what I like!

This posting has been used to upgrade the draft plan from Rev. #3

Meat Regs: More at stake than meat

Ontario Ministry of Agriculture and Food ("OMAF") is reviewing their Meat Regulations.  When they held public information meetings on their proposed changes, I attended the Sudbury meeting.  See my previous report after their public information meeting.

I finally finished it and filed Small Flocker's recommendations and comments with OMAF. Small Flocker's comments and recommended improvements on Ontario's current Meat Regulations are available here

Some of the issues I raised are as follows:

Food Borne Illness Outbreaks
Food borne illness in the US is estimated at $77.7 Billion per year.  We might therefore estimate Canada's impact at $7.77 Billion per year, 10% of US total.  Similarly based on US results from CDC, Canadian food borne illness outbreaks (ie. many individuals over a large area affected) from meats and poultry (ie. excludes fish & seafood) probably account for 22% (n=210,000) of the outbreaks, 22% (n= 572) of the resulting hospitalizations, and 29% (n=18) of the deaths.

Sporadic Food Poisoning
Add to the outbreaks described above are the sporadic food borne illnesses (1 or a few people, closely contained). More than 9 million persons each year in the USA have a food borne illness caused by a major pathogen, so Canada probably has 900,000 sporadic illnesses per year.

Poor Diet due to high cost of Meat
There is growing understanding by food nutrition experts  that excess dietary carbohydrates are causing or contributing to significant incidence and prevalence of multiple diseases such as obesity, diabetes, Alzheimer’s, arthritis, metabolic syndrome, cardiovascular disease, high blood pressure, cancer, etc.  See Dr. Lustig here and here, Gary Taubes here, and Dr. Jay Wortman here and CBC Television Documentary here

Health care is more than 40% of Ontario’s Provincial budget, and these dietary influenced diseases are directly and indirectly related to most of these health care costs, possibly up to 70% of these direct and indirect health care costs (ie. 70% of 40%, or a grand total of 28% of Ontario’s budget caused by poor diet).  Ontario’s 2013-2014 budget for healthcare is $48.9 Billion per year.  This total diet-related tax burden is suggested as 70% of this total annual budget, representing $34.23 Billion per year, a significant cost to Ontario.  The cost of food borne illness can be added as well, further raising the stakes.

I suggest that this $34.23+ Billion health care cost trumps the total value-added GDP of $8 Billion per year that is created by Ontario’s meat industry.

If meat protein and the accompanying animal fat is more affordable and available, this can help reduce these food-induced risks and disease burden for Ontario.

When considering the Meat Regulation amendments and these specific recommendation, it is suggested that this indirect cost to Ontario of $34.23 Billion per year be kept in mind.

Meat Export Opportunities
I previously posted about the appalling, weak-kneed meat export business Canada has for chicken.  In 2012, CFC reported that Canada produced 1.0247 Billion kg of chicken, at a price of $1.80/kg or higher.  We calculate a total value of $1.844 Billion.  If OECD exports can allow us to increase our production 5 times 2012 levels, that's an additional $7.378 Billion in GDP for Canada.  Ontario's share would be about 1/3 of this, or $2.46 Billion.  Assuming a 3:1 spin-off effect, that is a total of $7.378 Billion of additional business for Ontario.

Grand Total

When we add up all the above, we get a grand total in excess of $41.61 Billion per year that is directly affected by this Meat Regulation revision process.  I hope OMAF gives it the attention it deserves.

There is more at stake than just meat.

Saving Canada

The hits keep on coming, against Supply Management ("SM") that is.

I believe that SM has now decomposed and turned so rotten that it could soon kill Canada as a nation.  Fixing SM, or replacing SM soon could help save Canada.  Let me explain these shocking statements.

I proposed the draft Small Flocker's Plan to replace SM just 4 days ago, to surgically remove the SM parasite from the neck of Canadians.

In the 2 days hence, SMI provided me confirming support for the SM problems and the denial of those problems by SM's leadership.

Yesterday, I received some feedback from a different person, a SM industry insider and observer of SM and this Blog.  They were somewhat reluctant to adding in their two cents.  We will refer to this informed Supply Management observer as "SMO".

SMO believes SMI and I are correct about the SM Leader's denial of the chronic problems inside SM systems.  SMO believes there is significant resistance to change within the SM leadership.

SMO believes that any loss of SM protection for Canada's SM markets will immediately drop to the net profit (loss) line of producers and processors.  SMO believes that a small drop in sale prices will produce a huge drop in the net profits, probably driving it negative, into loss territory.

Remember how GM lost money on every car it made for about a decade, but the financing arm GMAC consistently made money, keeping GM afloat; then all of a sudden in June 2009, it came to an end, and GM was bankrupt.

SMO believes that as profits decline, the SM club rules won't be respected.  This has been occurring for some time now. Witness the Magical Trucks of Chicken and the smuggling of chicken into Canada, that I have previously Blogged about.

Another sign of the unraveling of SM is the in-fighting at the CFC (Chicken Farmers of Canada) board meetings has been getting worse and worse.  Today, CFC board meetings make the Middle East powder keg look like a church picnic.  BC's Farm Industry Review Board, in their chronic desperation has recently appealed to the Farm Products Council of Canada  to act as a marriage counselor for all the provincial representatives sitting at the CFC Board table.

Unfortunately, there are already many other signs of SM's unraveling.

In the recent Jame Bond movie Skyfall, the villain discussed what happened on an island infested with rats:

"My grandmother had an island when I was a boy. Nothing to boast of, you could walk along it in an hour. But still, it was - it was a paradise for us. One summer, we came for a visit and discovered the whole place had been infested with rats. They'd come on a fishing boat and had gorged themselves on coconut. So how do you get rats off an island, hmm? My grandmother showed me. We buried an oil drum, and hinged the lid. Then we wired coconut to the lid as bait. The rats come for the coconut, and... [imitates metallic scuttering.] They fall into the drum, and after a month, you've trapped all the rats. But what did you do then? Throw the drum into the ocean? Burn it? No. You just leave it. And they begin to get hungry, then one by one... [imitates rat munching sound.] They start eating each other, until there are only two left. The two survivors. And then what - do you kill them? No. You take them, and release them into the trees. Only now, they don't eat coconut anymore. Now they will only eat rat. You have changed their nature."

We will soon witness more and more, the SM Rats will begin to feed upon themselves, turning cannibalistic on their fellow SM'ers.

SMO also said that eventually some province will break away.  Note that Alberta has already given notice that they want out of SM for chicken.  Based on the letter referenced above, is BC that far behind?  If you're missing a few key provinces in your supposedly national SM system for chicken, is it really all that "national"?

As chicken unravels, do you think those events and tactics in chicken will have an impact on the other 4 SM products (ie. dairy, eggs, hatcheries, and turkey)?  As these other 4 SM industries reflect back, will that produce a feedback response within the chicken side? 

SMO suggests that once one province is free from the shackles that attach them to the walls of their SM velvet prison, the pent-up demand and liberating freedom will cause the reformed SM'ers to start ramping up production rates to take advantage of the sales opportunities found in all the remaining SM-provinces.

I agree with SMO.  I believe the unreformed SM'ers are half asleep, or "fat, dumb, and happy" in their SM-induced drugged state.  I also think that the SM-provinces and their Achilles' Heel of low efficiency, high price, and decades of inter-provincial resentment caused and magnified by SM will soon blow up the entire SM system in one quick, catastrophic explosion.  When an explosion occurs, a lot of people can get hurt,  and it will be the same for an SM system explosion.

The time to defuse the SM bomb is now.  Who will cut the SM bomb wires before the clock reaches zero and the explosion occurs?

Once the explosion occurs, the SM wars will begin.  Each SM supplier will seek alliances with other suppliers, or with their friendly producers.  Many alliances and factions will quickly form, then dissolve, and reappear in a different configuration.  There will be treachery and long knives within the SM ranks.  Everybody in SM will get hurt.  The consumer will get some short term benefits as prices drop like a stone, and the inventory for sale on store shelves will alternate between feast and famine.  However, eventually everybody loses, especially the consumer.  Those from outside our province, or from outside Canada, will "come to our rescue", and take advantage of the confusion and the SM Wars.  Long term, I'm afraid they won't be any better than our current SM Masters, and will probably be much worse.

Soon, this won't be about SM alone, for soon it will be about saving Canada.  Most likely, one of the biggest SM Wars will probably be between Ontario and Quebec.  It will likely get very nasty.  It could get so bad as to be the match that ignites the fuse on the Separatist's movement again, potentially killing Canada.  Remember how close it was last time.  SM could push Canada over the cliff.  I hope the Powers That Be get really worried, really quick; so worried they decide to take action now.  I like Canada.  I don't want SM stupidity to be its downfall.  Beware!  The last thing I want are bragging rights to "I told 'ya so!"

The best alternative is to take surgical, decisive action now, before any of this doomsday scenario could possibly be set in motion.

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.

Can Supply Management be Saved?

As Chris Hedges says, you can take a step toward supporting truth and justice, or you can take a step towards privilege and power.  Doing one of these automatically undoes the other.  Choose your path.

This is similar to the polarization of "You're either with us, or against us."
 
I received an email providing me feedback on my proposed replacement for Canada's Supply Management System .  The email was from a Supply Management insider ("SMI"), a well informed, influential insider to Supply Management, a close advisor to those with their hands on SM's levers of power.  So as to protect this person from outing and subsequent ridicule, I will not name them, thereby encouraging others like them to come forward with their comments & suggestions.

SMI suggested to me that SM could be improved, needs to be improved, but radical change of SM need not occur.  SMI feels that abandoning SM for anarchy, or nihilism, or some ill-defined alternative need not occur.  SMI likes very much the 4 Principles I proposed for any solution to the current SM system.  SMI seems to feel that it is a virtue that Canada's SM system is able to charge 300% for its SM commodities.

SMI feels that as current trade talks continue, we will probably be forced to open our borders some more to foreign goods (ie. the SM commodities of dairy, eggs, chicken, and turkeys), and our high domestic prices may have to drop somewhat, but SMI sees this as no reason to throw the SM baby out with the bathwater.  SMI feels it is highly unlikely that Canada will be forced to fully open its markets to foreign goods and totally dismantle our SM system.  The nuance I sense is that SMI feels that the winds of change against SM are mainly from outside of Canada, and most people within Canada are oblivious or apathetic towards SM and what it does for us (does to us).  It's almost as if SMI feels that SM is similar to maple syrup and hockey, that SM is one of the important factors of what makes us Canadian.

SMI seems to feel my proposal will upset the leaders of SM, cause them to feel threatened, and therefore cause them to fight against it, rather than support it.  SMI said, "...the SM boards themselves need to be convinced that ... their situation is untenable."

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

Quote by Upton Sinclair (1878 - 1968), prolific American writer, including The Jungle (1906), which exposed scandalous conditions in the U.S. meat packing industry, causing a public uproar that contributed in part to the passage a few months later of the 1906 Pure Food and Drug Act and the Meat Inspection Act.  Time magazine called him "a man with every gift except humor and silence."

SMI also said, "Internally I think they see big problems in how the mechanics of the system is operating, but do not see a need to wind the system down. Any proposal for big changes in supply management will need the SM groups' buy-in; they are stuck in marginal changes when they should be making big changes, but I don't see why they would support a process for wind down."

I agree with SMI, that the SM leaders can barely bring themselves to contemplate incremental, marginal changes.

I believe SM leaders have to expend huge efforts hiding the truth from themselves and all others.  Cognitive dissonance is when a person must finally admit a previously denied and avoided truth, for to continue denying it further would be a full admission to themselves of their insanity (ie. no longer in touch with reality).  SM leaders, in my opinion are a long, long way from cognitive dissonance

SMI suggests that I focus my efforts on helping SM to:   a) become a little more liberal;   b) lower their domestic commodity prices just a little (or slow the rate of cost increases ??);  and c) obtain growth in the industry.

My response to SMI was as follows:

Thanks for your feedback, I really appreciate it.

As a management consultant for the last 23 years, I always told my clients, "As bad  as it looks today, 95% of what you were doing is good stuff.  It's that last 5% is what is driving you crazy and causing all of your issues.  We need to focus our efforts there."

When I got started on SM in Jan. 2012, that is what I assumed would apply here as well.

Since then, I'm beginning to see just how bad it is.

Witness the egg marketing board fiasco here:   https://hoosierincanada.wordpress.com/2013/05/15/looking-for-cracks-at-efo-finally/
and here:  http://agri007.blogspot.ca/2012/12/heres-scoop_7234.html

For the chicken side, I calculate that they are raping the Canadian public every year as follows:

• $11 million/yr planned Pullet Supply Management premium (coming soon to a province near you)
• $143 million/yr Chicken feed premium pricing
• $945 million/yr Bogus FCR in farm gate chicken pricing
• $10.8 Billion/yr Premium price of Cdn. chicken over US price
• Total $11.9 Billion per year taken out of Canadian's pocketbook every year.

I hear similar issues on the dairy side.  Witness the pizza pack fiasco on cheese.

Turkey is pretty quiet.  Can we assume all is OK over there?

Pullets can't wait to join SM5, at a starting cost of $11 million per year, and rising.  See http://canadiansmallflockers.blogspot.ca/2013/05/pullet-parasite-11-millionyr-screwing.html

Those who are channeling and directing this SM system, and simultaneously benefiting from it, will they voluntarily stop?  I seriously doubt it.

They now have 2+ generations fully steeped into their traditions and myopic view of the world, similar to how most psychopaths see their victims; they just don't see a problem with what they are doing.   They think they're doing "god's work", and we should all be thankful for their tireless effort on our behalf.

Unfortunately, we don't have Diogenes to help us find the one honest man in the SM system.

I'm sure all of these SM bureaucracies, [ reference to SMI's organization], you, and many others have good people who are trying to do a good job for the "system" they work for.  While they work for the system, they didn't create it, they just accept it as somebody else's decision that they are carrying out the best they can.  In other words, careerism.  It's good for their career to bolster the current SM system as much as they can, because the alternative is frightening.

Those in control of SM will not stop on their own.  We, the Canadian public, can either accept our fate, to continue to be subjected to their whim to do with us as they please, or they have to be stopped against their will.  Like any psychopath worth their salt, they will do everything in their power to retain dominance and control over their historic powers, privileges, freedoms, and their victims.

All that above sounds like a manifesto.  I never thought I'd get that black & white about something.  Unfortunately, I see no other choice with these people.

If all the above is true, or just 1% true, I don't see a graceful evolution, or a few minor fixes around the edges.  SM may have worked & was needed at some time in the past, but is rotten to the core today, and the cancer needs to be removed.

Comments?

If I'm missing something, if there is some glimmer of hope in this pile of smoking ruins called SM, please point it out to me.

Glenn Black
Small Flock Poultry Farmers of Canada

Shipping the Chickens

I've Blog posted on our draft plan for the removal of Supply Management from Canada.

That plan allows everybody to agree on the farm-gate price to be paid for chicken (or the other SM commodities of  eggs, chicks, turkeys, & milk).  However, there is a geographical separation between the producers and the processors.  Somehow, we have to arrange for the transportation between the two parties.

The truncated k-double auction can match up a specific producer with a specific processor, but based on the randomness of the auction process and the resulting bid-ask matching, that matching could cause unrealistic shipping of chicken everywhere across the province.  It is therefore best for the auction process to be supplemented by a least-cost shipping schedule.

How do we do that transportation, and who pays for it?  Obviously, it is better to minimize shipping costs (sorry truckers).

Ontario's Quota and Non-Quota Chicken Growers

 We have to optimally hook up all of the red dots above (chicken farmers), with all the red dots below (chicken processors):

Federally-inspected Meat Processing Plants

Plus the following Provincially-inspected meat processing plants:

Provincially inspected meat processing plants

Once a producer or processor are geographically located, it cannot be easily moved, yet things change.  Populations shift, vehicle fuel prices go up & down, producers & processors get into disputes that force them to deal with others than the geographically closest match, and so on.  If somebody decides to grow chicken in Thunder Bay, how do we (should we) be shipping those chickens to a processing plant in Toronto?

What about inter-provincial movements?

We have a few options:

1. We do separate auctions for each region.  This complicates the auction process greatly.  It may cause the balkanization of the provincial chicken market (ie. sub-division, non-cooperation, competition, abandonment).  Some auctions may get shunned by important producers or processors.  There may be large price differentials between the different auctions, putting one side at a significant competitive dis-advantage.  Popular auctions are over-loaded while unpopular auctions are under-serviced.
   
   
2. We leave those transportation details for each producer-processor pair to work out for themselves.  The auction sets the price for the chicken, transportation extra.  This might work most of the time, but it will probably be like musical chairs when the music stops; a mad scramble to grab the nearest chair, somebody gets hurt, or you've left standing and the nearest empty chair is at the far end of the room.  Not nice when you have to do this every quota period, and your life depends upon you making it there before somebody else.
   
   
3. We have FOB shipping hubs defined all across the Province.  The producer includes the cost of getting his product to the nearest FOB shipping hub in their auction bid, the processor pays to transport from their nearest FOB shipping hub to their factory and includes that price in their auction bid, then the bookkeeping cost of inter-hub transfers is pooled and shared equally by all.  I wouldn't want to be the one who decides how many and where these FOB shipping hubs will be located, for nobody will be happy with the decisions made.
   
   
4. The shipping costs are pooled for the entire province.
    
5. The shipping costs are pooled for each of the regions within the province.

Dijkstra's Algorithm is the standard algorithm that is used to find the shortest path between two points (eg. GPS mapping and driving directions).  When we have multiple sources and multiple destinations, it's a little more complex.  Good thing IBM has already solved that problem, way back in 1996.  They used a modified A* heuristic algorithm to estimate the Dijkstra optimum path in 30% less computational time. There is also the Floyd-Warshall Algorithm. Neither of these is exactly what we will need to solve the Multiple Pairs Shortest Path Algorithm ("MPSPA") that we will require for provincially-optimum chicken shipments, so some computer software development work will have to be done on this issue.

Once the auction results are defined, the winners' names & locations will be entered into this MPSPA shipping optimization software, and it will calculate the province-wide optimum pairing up of buyers & sellers; defining which supplier gets to ship to which processor.  Each of the parties are then notified of who bought & sold for each bid-ask pair.  If there are specific classes of chicken sold, then multiple runs of MPSPA, one for of the various classes of chicken, will have to be calculated.

While this gets us a province-wide optimum shipping schedule, the cost of shipment is still significant, as well as the scheduling of the catching crews.

Do we need to have all producers and all processors treated the same, no matter where they are located in the province, removing geography from the equation?

For example, let's say a producer is right next door to a chicken processing plant, and these two love each other, and have been supplier-customer forever.  Perhaps, for the good of the overall optimum on a provincial basis, it is better to break up these kindred spirits, and they will be required to buy and sell to somebody else who is a little farther away, and somewhat of a stranger.  This will cause some frustrations & higher costs for both of the original pair.  If we wish to get a provincial minimum cost, shouldn't the minimum cost be pooled across the province, so these two chicken lovebird don't personally pay more for the good of everybody in the province?

I therefore recommend that shipping costs be minimized on a provincial basis using MPSPA, then the shipping costs are pooled across all of the province, and added as a $/kg cost to all chicken transactions.  This makes all farms and all processors on an equal footing cost-wise, no matter where they are located in the province.