Saturday, February 22, 2014

Factory Chicken has met its Match

The #ChickenMafia think they are guaranteed to win the battle against the Canadian consumer and Small Flockers.

And why not?  The #ChickenMafia have an interlocked grid of legislation at both the Federal and Provincial levels that protect their monopoly, Canada-wide.

Oh, wait a minute, that's right, I forgot, Alberta is so pissed off with the unfairness of the #ChickenMafia they have given notice, and dropped out of the deal.  It's used to be almost bullet proof, but significant cracks in #ChickenMafia amour are starting to show. .

Unfortunately for the #ChickenMafia, the tide may soon be turning against them, more and more.

If I heard great things about Small Flockers' chicken from my friends and neighbours, then I'd try to give that farmer a visit and check it out for myself.  With a few key questions, and looking the place over first hand, I'd quickly determine if I felt he was doing a reasonable job of it, and his chickens were safe to eat.  I'd then buy one and see how it tasted.

I think that is all very predictable and reasonable.

Now let's take it up another notch.

What would the typical consumer do if that Small Flockers' chicken tasted fantastic, AND was the same or lower price of what chicken is selling for in the nearest grocery store?

If it was me, I'd buy a year's supply of that affordable, great tasting chicken.

Does that mean that Small Flockers have to do charity and sell below their cost?  I don't think so.

Here's why.

By CFO's Live Price Bulletin for Quota Period A-122 (Jan. 25, 2014 - Mar. 22, 2014) for a chicken weighing between 0.9 kg to 1.1 kg, the farm gate minimum price is $1.720/kg.  Deduct from that the producer license fee of $0.0160/kg (CFO's levy) and $0.0044/kg for CFC's levy, for a total #ChickenMafia fee of $0.0204/kg, so the farmer gets a net sale price of $1.6996/kg for his chickens. By CFO's definition and Mission, that net income includes a reasonable return for the farmer's efforts.

In a previous Blog posting (see Small Flocker Price Difference ), I described how the #ChickenMafia pay about $388.375/tonne for their chicken feed (Quota Period A-121) according to CFO's feed price data.  As a Small Flocker, I currently pay $18.00 per 25 kg bag for my chicken feed, which is $720.00/tonne.  Note that this is 85.4% more expensive for Small Flockers than the #ChickenMafia.

When growing chickens, feed costs are about 60% of the total cost of production.  If we assume that Small Flockers and #ChickenMafia both have the same fixed costs per bird produced, and the only difference in total costing is the chicken feed, then we can calculate that Small Flockers farm gate price should be $2.601/kg    ie. 1.72*(0.6*1.854+0.4)=2.601

If you didn't do well in school on algebra. here's another chance to "get it". All others, skip to the next paragraph while I help my fellow citizens catch up. Chicken feed is 60% of the cost to raise chicken.  The total cost(feed + fixed costs) to raise #ChickenMafia chicken is $1.72/kg.  So what is the cost of chicken feed for raising a kg of chicken by the #ChickenMafia?  It is $1.72/kg * 60%= 1.72*60/100=$1.032/kg.  The Small Flocker's cost of chicken feed is 85.4% bigger than the #ChickenMafia's cost, so the Small Flockers cost of chicken feed is $1.032/kg * 1.854= $1.91332/kg.  The fixed costs for the #ChickenMafia farmer is 40% of the total cost, so the fixed cost is $1.72/kg * 40%= 1.72 * 40/100= $0.688/kg.  We'll assume that fixed cost is the same for the Small Flocker, so the Small Flocker's total cost of raising chicken is the cost of feed plus the fixed cost, which is $1.91322/kg + $0.688/kg, for a total cost of $2.60122/kg.

Therefore, if a Small Flocker charged $2.601/kg for his live bird at his farm gate, that would be similar or equivalent to the farm gate price charged by the #ChickenMafia.  With eviscerated meat being just 73.72% of the live bird weight, that farm gate price would be equivalent to $3.529/kg eviscerated meat   ie. 2.601/0.7372= 3.529

Allowing for transportation to and from, and the abattoir processing charge(ie. transform a live bird to eviscerated meat ready for cooking), let's assume its $3 per bird.  For a 1 kg bird, slaughter adds $3.00/kg to the cost, so our total Small Flocker farm gate price is $3.529/kg+$3.00/kg=  $6.529/kg.

Our retail chicken price survey conducted (see Ontario Chicken Prices ) found fresh whole chickens selling at $6.59/kg.  Therefore, even though Small Flockers are forced to pay an 85.4% premium for their chicken feed, they can supply fresh, safe, nutritious chicken meat at $6.529/kg, which is just below the #ChickenMafia current retail chicken price in grocery stores.

Look no further for a safe, affordable, supply of chicken that a Small Flock farmer near you.

From this example, we can see that chicken factories don't necessarily have "economy of scale".  Alternatively, their economy of scale advantage is wiped out by the price gouging by all the middlemen downstream of the farmer.

On a similar basis, Big Barn reports that UK farmers typically receive just 9% at farm gate of the retail price charges in stores.  By selling direct to consumers at the farm gate at just 50% of retail prices, farmers can earn 555% more than selling through traditional distribution chains.  This benefits the farmer with greater return, benefits the consumer with a 50% discount and fresher foods; all at the expense of the current distribution chain who is seen as price gouging and inefficient.

Many trans-national agriculture mega corporations have their fingers in the pie all along the chicken supply chain, from eggs to broiler to feed mills to processors to further producers (ie. making raw whole chicken into drumsticks or chicken nuggets, etc.) to distribution.   They won't do it voluntarily as it would hurt themselves and their #ChickenMafia buddies, but lets assume their feed mill henchmen gave Small Flockers a break, and supplied chicken feed at the same price as the #ChickenMafia.  Then the Small Flockers farm gate price could be $1.72/kg too.  Add on the 73.72% weight change (life bird to ready-to-cook meat) plus $3.00/kg for slaughter, and we have a Small Flocker price at farm gate of $5.33/kg (ie. 1.72/0.7372+3.00= 5.33).  Now, Small Flockers' farm gate ready-to-cook chicken price is 19.11% cheaper than the #ChickenMafia.

Tastes better, more nutritious, and 19% cheaper.  Exactly why does the #ChickenMafia deserve that guaranteed monopoly?  I suggest they don't deserve it, they need it to protect them from the Small Flockers.  It isn't the hords of foreign barbarians bearing chicken that the #ChickenMafia need to worry about, it's the enemy from within, the Small Flocker, who will finish off this dinosaur.

The #ChickenMafia is huge and powerful dinosaur.

 Exactly how does the small, independent Small Flocker going to eat the #ChickenMafia dinosaur?

One steak at a time, that's how.

The trick is to get that #ChickenMafia dinosaur to squat over top of our BBQ.


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