Ontario's chicken farmers are unhappy with new pricing formula

Wednesday, March 18, 2015

by SUSAN MANN

Chicken Farmers of Ontario has asked the agency overseeing regulated marketing in Ontario to amend the new chicken cost of production pricing formula implemented this winter.

But if the Ontario Farm Products Marketing Commission opens up the pricing formula in the chicken marketing regulation (Regulation 402) for reconsideration, the Association of Ontario Chicken Processors said it will request reconsideration of several items it wanted in the new cost of production pricing formula too – items that had been successfully opposed by Chicken Farmers of Ontario.

The processors’ association outlined its concerns in a Jan. 30 letter to the commission from its lawyer, Herman Turkstra.

The chicken processors’ position is that everyone should accept the changes that have been made “and the parties should move on to advancing the industry through growth, increased efficiencies and consumer focus,” Turkstra said in the letter.

The commission told both farmers and processors it will hold a written reconsideration hearing in two stages. The first stage will be to reconsider the items Chicken Farmers outlined for revision while the second stage will reconsider the processors’ association items.

Commission chair Geri Kamenz said in an interview during a break at the Chicken Farmers of Ontario annual meeting last week the next step in the process is to hold a prehearing conference “to identify the scope of hearing.”

The new pricing formula went into effect starting with quota period A-129 (Feb. 21-April 18). The commission brought in the new pricing formula regulation in January after consulting with farmer and processor organizations and others.

In an earlier interview, Kamenz said the changes were intended to update the chicken cost of production formula, add transparency to the process and ensure efficient producers continue receiving stable and profitable returns.

Chicken Farmers chair Henry Zantingh told annual meeting delegates that users of the new pricing formula have seen a 5.1-cents per kilogram decline in the live price compared to what they received using the previous pricing formula. The previous method had been in place since 2002.

“Chicken Farmers of Ontario believes there are certain elements of the (new) formula that should be changed, which going forward will significantly increase the justification, transparency, intelligibility and defensibility of the cost of production formula,” Zantingh said.

During an interview at a break in the meeting, Zantingh said the organization is “fully supportive of the cost of production formula; there are just certain aspects we’d like to have reconsideration on.”

Zantingh declined to say what sections of the formula should be changed but the organization’s issues are identified in a Jan. 23 letter from its lawyer, Geoffrey Spurr, to the commission. The commission provided the letter to Better Farming along with the Jan. 30 letter from the chicken processors’ association.

Spurr said in the letter Chicken Farmers of Ontario accepts the concept of a price reduction. However, the weighted average cost of capital must be consistent with the depreciated replacement cost approach agreed to by both Chicken Farmers and the processors’ association. In a telephone interview, Spurr said this is a methodology used for addressing return on capital. However, he declined to go into further detail.

“Obviously I can't tell you what our arguments are in detail or anything like that,” he said.

Another change Chicken Farmers seeks deals with the regulation’s goal of driving producer efficiencies by eliminating data from producers with the highest costs when calculating prices. Chicken Farmers said the reduction is a duplication because the core cost of production formula was “deliberately designed to account for efficiencies,” Spurr said in the letter.

Spurr said another sore point for the organization is that gains on feed efficiency under the new formula are applied only to processors; Chicken farmers want to see that credit shared.

The impact of market development production hasn’t been treated fairly, Spurr said in the letter. Also, there was no term limit for the cost of production formula stated in the regulation but farmers and processors “anticipated it would be a term no longer than five years.”

Zantingh told meeting delegates the board “is looking forward to a successful reconsideration process and a fair and sustainable cost of production result.”


Search for kosher chicken processor continues
Chicken Farmers of Ontario has so far been unable to find a new kosher chicken processor for the province. Ontario has been without a kosher chicken processor since Chai Kosher Poultry in Toronto closed in 2013. Marvid Poultry of Montreal has been supplying the Ontario market using chickens grown by Quebec farmers.

The Canadian kosher chicken market demand averages 70,000 to 75,000 birds a week. Most of the demand is in Toronto and Montreal.

In 2014, Chicken Farmers posted a notice on its website requesting interested companies to submit proposals to operate a kosher chicken processor but that process “has not identified and confirmed a new Ontario kosher processor,” it said in the annual report released at the meeting.

In December, Chicken Farmers hired Deloitte Consulting to help it find a processor “with the goal of reaching a kosher chicken solution in 2015, ” the annual report says.


Dispute over MOU for the framework for national chicken production allocation
The national production allocation framework memorandum of understanding (MOU) reached and implemented last year is being incorporated into the Chicken Farmers of Canada operating agreement this year and has to be signed by all provincial boards, Dave Janzen, chair of the national organization told meeting delegates. But some provinces are now challenging the MOU.

Ontario supports the memorandum.

Janzen said the agreement ensures every province will be able to continue growing as 45 per cent of future growth “will be allocated based on provincial market shares” while 55 per cent will be allocated based on several comparative advantage factors, such as population growth, gross domestic product growth, consumer price and farm input price indices.

In an interview during a break in the meeting, Janzen says he’s very confident “we will get this thing approved.” Chicken Farmers of Canada officials are meeting with provincial boards and supervisory bodies to explain the memorandum in greater detail.

Saskatchewan has been critical of the memorandum, he explained. Western-based processors have launched appeals before provincial supervisory bodies in Manitoba, Saskatchewan and British Columbia.  “They are arguing the memorandum of understanding is favouring Central Canada over the needs of Western Canada,” he noted, adding the Manitoba appeal may be withdrawn.

Chicken Farmers of Canada has applied for intervener status at the hearings and will “vigorously defend” the allocation agreement, he said. BF