Tuesday, November 5, 2013

Celebrations: ! or ?

Retail chicken prices should soon see a "huge" price drop of $1.06 per kg (ie. an 18.365% price drop).  CFO's quota period A-120 (Oct. 6 2013 to Nov. 30 2013) is when cheaper chicken will leave farm gates throughout Ontario, and start to work its way towards the grocery store meat counters. 

Thank-you to all who helped make this price decrease happen for the Canadian people.  I say Canada for a good reason, even though it is only Ontario that this drop has been ordered by Ontario Farm Products Marketing Commission ("OFPMC").

The reason I say "Canada" is that Ontario is about 1/3 of the total chicken market in Canada, and almost all the other provinces have traditionally taken their farm gate live chicken pricing lead from Ontario.

Perhaps I need to explain further.  Bogus farm gate live chicken prices charged by Chicken Farmers of Ontario ("CFO") were ordered reduced by OFPMC by 6.9 cents per kg. in Ontario.  That is what the main stream media and CFO's press releases focus on, but that is just the beginning of the story.
With a 16.3% drop in the FCR (Feed Conversion Ratio) as ordered by OFPMC, and feed is about 60% of the total variable cost of live chicken production, that is a 9.7% drop in live chicken prices.  With 73.72% weight for eviscerated chicken meat from live birds, that live bird price decrease should be equivalent to a 7.21% drop in eviscerated meat cost.  In a previous Blog posting, I showed that the average retail price for chicken was $5.75/kg for Dec. 16, 2012 to Jul. 27, 2013.  According to CFO, the average live price for birds weighting 0.9 to 1.1 kg (ideal weight) during that same time period (Quota periods A-114 to A-118) was $1.8778/kg.  We therefore calculate an overall markup of 254.72% during the marking up of the slaughter, wholesale, and retail steps in the #ChickenMafia 's supply chain.

Just for interest sake, if we assume all 3 steps gets an equal percentage markup (NB: we don't know this), then each of those processing steps gets an average markup of 31.18% (ie. 1.3118*1.3118*1.3118= 2.5472).

If price increases get marked up as they travel from farm to retail meat counter, so should price decreases (I know, it's true heresy in the #ChickenMafia, a price decrease!).  Therefore as the equivalent eviscerated meat price drops 7.21% at the farm gate due to OFPMC's order to CFO, the retail meat counter price, using the same 254.72% markup rate, should cause the retail meat price to drop by 18.365%. For an average retail price of chicken at $5.75/kg. before the price decrease, that comes out to be a $1.06/kg price drop.

At least those 254.72% price markups were in place when the price of chicken was going up.  We will soon learn if the #ChickenMafia is as quick to follow the Ontario prices down, as they were in following Ontario price increases.

It is interesting that other agriculture media report (see "Chicken prices cut begins today" posted on Ontario Farmer with a byline date of Nov. 1, 2013) an Ontario chicken price drop of just 6.9 cents per kg.  They specify neither what this prices refers to (live or eviscerated), nor where it is located at (ie. farm, slaughter, wholesale, or retail), thereby not clarifying fully.

Note that I say this is what should happen.  However, I fear reality will be more cruel than this.  Most likely, there will be asynchronous price changes (ie. a hysteresis):
  • Fast (and highly probable) price increases
  • Slow (and highly improbable) price decreases.
We obviously need the media to celebrate this victory for Canadian consumers, alerting consumers as to what could become true.

Without the expectation and anticipation of a retail price drop for chicken, it will never happen, as somebody else along the #ChickenMafia supply chain between the farm gate and the grocery store meat counter will grab that price reduction as extra profit for themselves.

How do we ensure that Canadians get the savings they deserve?  If the CFO is now forced to stop raping consumers, is it OK for somebody else in the #ChickenMafia to start raping consumers?

Let's get your ideas in the comment section below:

  • What will you personally do to get your fair share of this chicken price reduction ?

  • What should other people or groups be doing to help ensure all Canadians benefit from this price reduction so retail chicken prices drop?

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