Chicken industry struggles with production quota allocations

An old problem takes on new urgency as disgruntled provinces start pulling out of the system

A recurring dispute over how production quota is allocated to provinces experiencing rapid population growth is once again haunting Canada’s broiler chicken industry.

Negotiations to solve the issue of differential growth have repeatedly broken down and one province has left the national chicken system in protest.

A solution appeared close several times this summer. But some provinces backed away at the last minute and although talks continue, there’s no resolution at hand.

While provinces dicker over chicken allocations, the industry faces other more pressing matters such as biosecurity, animal welfare and a trade dispute with the United States over allegedly fraudulent imports of spent fowl.

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The mounting problems within Canada’s supply-managed chicken sector make solving the differential growth issue critical, producers admit.

“We’re always looking at risks and scenarios. We evaluate them. Certainly, any risk is what gives the incentive to reach a deal,” said Wayne Hiltz, Manitoba Chicken Producers executive director.

“We view the continuance of the system as valuable and there’s risks out there that could threaten that. We want to manage around that accordingly.”

Allocation dispute

The current dispute revolves around Chicken Farmers of Canada’s inability to allocate production to reflect a province’s economic and population growth instead of just historical market share.

The problem is as old as CFC itself and has threatened to split the broiler industry several times since the agency was founded in 1979.

Over the years, CFC tried several ways of allocating production for each of its eight-week rolling production periods throughout the year. The agency began with a top-down formula-driven approach, then switched in the 1990s to a bottom-up allocation approach based on the volumes processors said they needed.

A 2001 federal-provincial agreement was supposed to create peace. But periodic disputes have arisen since 2009 over differential growth and the system’s inflexibility in matching supply and demand in provinces with rapidly growing populations, mainly Alberta.

The 2001 FPA actually allows for differential growth among provinces. But Hiltz said no one has ever been able to define what differential growth really means, much less implement it.

“There’s been various attempts in the last several years to define it and come up with a formula. At this point in time, that still hasn’t occurred. There’s been occasions where we’ve been close with nine provinces on side and we can’t get the 10th one on side,” said Hiltz.

“I think everyone agrees a formulaic approach is the best approach, including Alberta. It’s just trying to find the formula.”

CFC held a series of mediation sessions in late 2013 and early 2014 but they failed to produce a solution.

Alberta withdrew from CFC on December 31, 2013 after complaining for years it couldn’t get differential growth even though the FPA provided for it. Alberta still maintained a service agreement with the national agency.

Efforts to solve differential growth and bring Alberta back into the fold peaked this summer. A deal appeared near several times. But some provinces always reneged at the last minute.

Mike Dungate, CFC executive director, declined to comment about the state of negotiations, citing confidentiality.

“(He) is concerned that the contents of the discussions are sensitive and he doesn’t want to jeopardize the progress being made,” a CFC spokesperson said in an email to the Co-operator.

But well-placed sources said the latest proposal under consideration would see Ontario, Canada’s largest chicken-producing province, and Alberta get a larger share of projected future market growth at the expense of the other provinces.

The plan would project future market growth for chicken over the next 10 years. A complicated formula would use a combination of existing market share (pro rata), population growth, economic expansion and other performance components to allocate future growth. If market expansion followed projections, Ontario and Alberta would receive more kilograms and other provinces would get fewer. No province would lose production; it just wouldn’t get as much future growth as it otherwise might.

The nine remaining CFC member provinces thought they had a deal on July 8, but Ontario held back. Another agreement appeared close on September 9 but Nova Scotia, with only a small fraction of Canada’s chicken supply, inexplicably balked. Nova Scotia subsequently put forward a counter proposal, which was discussed in mid-October.

The Canadian Chicken Poultry and Egg Processors Council is watching the situation carefully because differential growth will influence its chicken supplies.

Manitoba is said to have played a leading role in promoting the proposed new formula, even though the province could lose out on future market growth. Hiltz said some give and take is needed to get everyone on board and save the system.

“Obviously we’d all like to have more and do better than the next guy. That’s a given. But at the same time we value the system. We think the system is stronger if Alberta is in it,” Hiltz said.

“At the end of the day, we all signed an agreement in 2001 that said there would be differential growth based on comparative advantage and we’ve never implemented it.”

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