by JIM ALGIE
An 84 per cent drop in annual egg quota sales over the past five years may show the effect of a relatively new system for leasing production opportunities to willing producers rather than simply distributing them equally among quota holders.
It’s one possible conclusion from preliminary analysis by Egg Farmers of Ontario (EFO) of the Mississauga-based agency’s new quota exchange introduced in March, public affairs director Bill Mitchell said in an interview, Friday. Growers can expect to hear more exchange analysis at zone meetings scheduled for January with a complete report in time for the group’s annual meeting in March 2015.
“All indications are that egg farmers have really accepted and adapted quickly to the new system,” Mitchell said. In four exchanges held this year, quota values have held within a close range between $295 and $296 per unit. In Ontario’s supply management system for eggs, a unit of quota refers to the right to produce eggs from a single laying hen.
The number of completed transactions ranged between a high of seven at the first exchange in March to a low of only two in August, accounting for quota transfers of 16,003 and 3,042 units, respectively. However, the total number of transactions is well below the five-year average and part of a steady decline in quota transfers since 2009.
The new exchange was introduced to curtail rising quota values and to provide eligible farmers with fair and equal access to quota. The move comes with steady growth in both sales and production of eggs in Canada.
The board’s 2013 annual report highlighted approved quota increases for 2013 and 2014 at the equivalent of 582,127 hens. That followed a three per cent increase in retail sales, well above targets and the seventh year of consecutive growth. Since then, the growth pattern for egg sales has continued, Mitchell said.
“There’s been pretty strong and consistent growth in the egg market in the range of about three per cent for a number of years,” Mitchell said. Rather than distribute new production allotments by increasing quota to existing quota holders, however, EFO distributes it through a “leasing pool.”
Since 2010, growers with barn space have been allowed to lease quota at a rate established annually.
“It removes the whole aspect of a grower’s windfall gain from growth (of the total market),” Mitchell said. Likely, the former system of distributing new production to quota holders equally, led to a more-active-than-necessary marketplace for quota as growers simply sold what they couldn’t use.
“It is essentially seen as a windfall gain to that farmer who never produced the eggs,” Mitchell said. The new policy responds to Farm Products Council of Canada concerns about modernizing the industry’s legal framework, Mitchell said. Ontario egg farmers operate what Mitchell described as “truncated exchange” for quota transfers which helps limit growth in quota values. The electronic auction system awards bidders who come “closest to the equilibrium price” among offers from buyers and sellers. Traditional auctions award the highest bidder and support upward pressure on prices.
Before this year’s exchange, farmers bought and sold quota among one another directly. The new system was developed by Université Laval agricultural economist Maurice Doyon and a University of Victoria colleague, Daniel Rondeau.
The system followed three years of research and consultation with growers and allows quota transfers “in a more open and transparent” process, a statement by EFO general manager Harry Pelissero said at the time. It also publishes completed transfer prices and statistical data.
Summaries of each exchange for 2014 are published on EFO’s website. Without a central exchange and published prices it was hard to determine a market value for egg quota. Results of this year’s sales show prices consistently in the $295 to $296 range.
A Dec. 3 report on the fourth quota transfer session shows six successful transactions totalling 13,500 units of egg quota. Pullet quota sales totalled 48,038 units through six completed transactions at an equilibrium price of $23.80.
Following the first quarter exchange earlier this year, Pelissero said sales roughly matched the volume under the group’s previous, less formal transfer method.
It’s part of a sharp decline in quota transfers in each of the past five years and may confirm that policy changes have cut unnecessary transactions. In 2009, EFO data showed transfers of 338,000 units to 63 buyers for an average of 5,365 units per buyer. Quota transfers have declined in each year since then, Mitchell said.
In 2014, EFO data shows total transfers of 51,655 units to 21 buyers for an average of 2,459 units per buyer. Some of it may involve adjustments in quota buying activity as people reacted to introduction of the new exchange system itself. However, Mitchell also said the five-year-old system for leasing new production eliminates some extraneous trading in quota.
“We went from one method of allocation that was giving potential windfall gains and not serving the purpose of the quota system to one that is allowing the quota system to operate in an effective and efficient manner,” Mitchell said. BF
Comments
Good information, but I think the headline doesn't match with the content that well.
Headline makes it seem like there is a problem, article details say the opposite.
a farmer in a lease program can get a 100 percent quota increase .This would result to a huge pay increase and that's EFO answer . Sounds like politics to me
QTS has stopped any new farmers entering egg farming.
Just takes to long to buy enough quota for a new barn.Looks like egg farmers want to keep the quota among themselves
NEW Farmers then look at broilers a more easy entry
If the ultimate goal is to curtail rising quota values, just reduce the COP's.
Besides, their plan here is not a little to late- it is alot to late.
This is like closing the barn doors after all the livestock has escaped.
Raube Beuerman
directors want control and if they really wanted new farmers they have enough quota to start 60 new farms. They all got the quota for nothing and these rich farmers hide behind cop
It just might of dropped because all the small producers are gone,and just the big and aggressive ones are left.,for the reason there is less quota for sale.
No one knows where the quota sales are going are really how much[transparent system] General public does not get this information. Small producers are selling down their quota and leasing in 296 to buy or 7.30 to lease that's easy math .So selling 3500 units at 296 is a nice vacation $1036000 or $25500 to lease. Looks greedy to me
Your presuming there is actually 3500 there to lease ?The price and producers leasing out will also vary.A small producer like anyone would simply be appyling to lease in.
Remembering also participation is limited to 5 years.
So are all farmers treated equal.
EDITOR's NOTE: Comment will be published when it is resubmitted and signed by author.
GM Canada sold 19,264 vehicles in November 2014..do we really need to know who bought them all ?
Where, and at what price, will the recently-announced "new-entrants" be able to buy egg quota when they have to start replacing the quota loaned to them?
Unless these new entrants have some sort of guaranteed access to replacement quota not available to others, I suspect this "you can't buy enough quota at any price" horror story is already starting to cause panic among the new-entrant dairy farmers who've been in business since 2007/2008 and who are soon going to have to either buy more quota which can't be had at any price, or sell what they have and get out of dairying completely.
Stephen Thompson, Clinton ON
So now it sounds like you have changed your mind and actually like SM .
If I'm not mistaken, the new entrant program for dairy was cancelled a few years ago, if for no other reason than the "Catch-22" situation created by the inavailability of quota for anyone, particuarly already "up-and-running" new entrants who will be forced to buy a certain amount of quota each year to replace what was loaned to them at the outset of the program.
In a way I feel sorry for any new-entrant who gets squeezed by the unavailability of quota when they need to start buy it to replace what was loaned to them, but then again, they were greedy enough to go into it, why should anyone care when they fail?
In addition, I can't understand how, or why, anyone would ever have ventured into any of the new entrant programs, given the huge after-tax cash flow commitments, assuming quota can be bought at any price, beginning in the year the quota loans have to start to be repaid.
Therefore, new entrant programs are still a form of child abuse in the same way supply management itself is consumer abuse.
Stephen Thompson, Clinton ON
Dairy program not cancelled.
You know not of which you speak.
The dog barks but the caravan moves on.
The new entrant quota assistance program was never suspended !
You better stick to your accounting because you wouldn't cut it in the Banking business.Most,if not all Bankers know the stipulations involved with the Dairy entrants program and still believe quota is one of the safest assets in Agriculture. Its one of the most reliable loans on their books,given that the applicant has a good 10-year business financial plan. What other non-Supply Management Ag-sector can give that ?Looking at the past decade,certainly not in the Beef and Pork Industries.
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