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B.C. Completes Pricing Review

After a lengthy process, growers in B.C. have a new price structure for live chicken


August 18, 2010
By David Schmidt

Topics

The live price of B.C. chicken will now be set based on a weighted
average of live chicken prices in Alberta, Saskatchewan, Manitoba and
Ontario. That is the decision reached by the B.C. Farm Industry Review
Board (FIRB – the provincial supervisory board) in its review of pricing
and other issues in the B.C. chicken industry.

The live price of B.C. chicken will now be set based on a weighted average of live chicken prices in Alberta, Saskatchewan, Manitoba and Ontario. That is the decision reached by the B.C. Farm Industry Review Board (FIRB – the provincial supervisory board) in its review of pricing and other issues in the B.C. chicken industry.

Although B.C. three major poultry processors formally requested the review in April, 2009, it was welcomed by all sides as pricing conflicts between growers and processors had been escalating for years with no end in sight.

BC
Pricing Issues Resolved. The B.C. Farm Industry Review Board (FIRB) has reviewed pricing and other issues in the B.C. chicken industry and has decided that chicken will now be set on a weighted average of live chicken prices in Alberta, Saskatchewan, Manitoba and Ontario.


“By May 2008, the (B.C. Chicken Marketing Board) concluded that the (negotiated pricing process in place since 1995) had become non-functional,” FIRB notes in its 24-page report, adding “this lengthy multi-issue supervisory review… speaks to the dysfunction in the B.C. chicken industry.”

In late 2008, BCCMB suspended the pricing process and began setting the price itself. To indicate the rancor, each price set between A-90 and A-98 has been appealed to FIRB by either or both the processors and growers.

In 2008, BCCMB commissioned Ference Weicker to develop a new pricing model for the industry. The consultants’ report recommended a combination of a cost model to establish an initial price and a market index model to set price boundaries. The model would then establish a differential between the B.C. and Ontario prices which would be used for six periods (48 weeks).

Processors objected to Weicker’s model, advancing a model which weights the live prices in Alberta, Saskatchewan, Manitoba and Ontario according to each province’s relative production, then adds a differential to the price.

During the hearing, which extended over eight days in December, 2009, and January, 2010, both the BCCMB and growers accepted the processors model but not the proposed differential. The BCCMB called the processors proposed differential of four cents/kg too arbitrary, instead calling for a differential of 4.35 cents. Growers asked for an even higher differential but did not specify the amount.

FIRB accepted the processors’ pricing model and the board’s differential and has ordered the BCCMB to incorporate it into its general orders. It also agreed with the board and growers that the differential should only apply if processors drop the catching cost back to 2.8 cents/kg. Processors had raised the catching price by one cent/kg in retaliation for one of the price increases.

FIRB also ordered growers and processors to develop catching standards and pricing structures similar to those recently adopted in Alberta by December 1.

“I believe that means the catching price should average 2.8 cents/kg but work up or down depending on the efficiency of individual barn layouts,” BCCMB director Rick Thiessen said.

More contentious is FIRB’s decision to accept the BCCMB’s proposal to eliminate the assurance of supply provisions which have been in place since 2004. Assurance of supply will now only be available to new or small processors with less than a two percent market share.

Because assurance of supply guaranteed processors a specific amount of live chicken in each growing period based on historical market share, it gave growers little ability to switch processors. The BCCMB, supported by growers, argued assurance of supply has run its course, saying an open sign-up system is necessary to promote competition and better relationships between growers and processors and encourage innovation.

“With assurance of supply, there is insufficient reward or penalty for good or bad behavious on the part of growers, processors and hatcheries,” FIRB noted.

Processors had argued vehemently against dropping assurance of supply, saying that could lead to Ontario-style “premium wars.” However, FIRB rejected their claims, pointing out B.C.’s three major processors have all recently expanded in Alberta where there is no assurance of supply and no premium wars.

“There is nothing inherently wrong with paying value premiums for products driven by consumer demand,” it added.

FIRB claims the open signup system will give processors more market stability as they can now enter into long-term contracts with their growers. At the same time, FIRB tied the market development (export) program (which is heavily used in B.C. to balance white and dark meat demand) to individual processors, allowing each processor to establish their own terms.

“If you don’t ship to a processor with a market development program, you won’t be able to participate,” B.C. Chicken Growers Association president Ravi Bathe explained.

FIRB says its attempt to provide something for everyone achieves balance in the industry. “We see the move to a pricing formula and the accepetance of the processor’s view on the appropriate weighting as a significant ship in the balance of power on pricing towards the processors. If assurance of supply was maintained…this would move the balance of power too far in favour of the processors and exacerbate industry dysfunction,” it states, concluding “the directions and recommendations in this review set the groundwork for improved chicken board governmance and industry relationships.”

BCCMB chair Ron Kilmury says the ruling “lays out the path the board has to follow,” although just when it will be implemented is still unclear. “The reality today will still be the reality tomorrow.”

Although FIRB has set a date of September 15, it has given the BCCMB some wriggle room, saying the board must at the very least have “prepared and published its transitional plan for implementation” by that date.

Thiessen believes that is the more likely scenario, saying “some changes could take longer than September 15.”

Dion Wiebe of Rossdown Natural Foods, which has a market share of about 1.5 per cent and was one of the instigators of the assurance of supply provisions, welcomed the change to open sign-up.

“We will be able to sign up our own farms which we haven’t been able to do till now,” he noted, adding removal of restrictions gives his processing company “an opportunity to grow.”

In an interesting sidebar, Richard Bullock, who chaired the chicken pricing review, completed his term as FIRB chair just two days after the decision was released. He has been replaced by Kilmury, who will now guide FIRB for the next three years after chairing the BCCMB for the past six years. Also appointed to FIRB was chicken and egg producer Derek Janzen, a former member of the BCCMB. Their first task will be to rule on the outstanding pricing appeals.

The government then appointed career bureaucrat Daphne Stancil as new chair of the BCCMB. Most recently the assistant deputy minister of strategy, policy and legislation of the B.C. Ministry of Agriculture and Lands, Stancil was instrumental in creating many of the rules B.C.’s supply management sector must now live by.


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