Chicken processors in Manitoba, Saskatchewan and British Columbia are appealing a memorandum of understanding signed last summer by provincial chicken-marketing boards and Chicken Farmers of Canada for the allocation agreement.

The industry is in the final stages of drafting an amended operating agreement, which is part of the federal-provincial chicken plan, to allow the MOU to take effect.

Although the MOU has been signed by the chicken boards, provincial regulatory bodies must ratify the operating agreement to complete the deal.

But processors are asking both regulators and chicken boards in Manitoba, Saskatchewan and B.C. to review the deal, claiming it gives Ontario an unfair market advantage.

“Some of our processing members do have concerns with the CFC agreement,” said Mike Terpstra, chicken sector manager with the Canadian Poultry and Egg Processors Council, in an email to the Manitoba Co-operator.

“CPEPC has communicated with the CFC on this matter recommending that a component for regional differential growth be incorporated in the new agreement while establishing checks and balances to ensure regional and national markets are supplied appropriately.”

Processors are not signatories to the national chicken agreement. But because they are key players in the industry, their voice carries some weight.

The western processors say a special arrangement in the MOU allocating extra kilograms to Ontario, Canada’s largest chicken producer, over 10 years is unfair to them.

Manitoba’s two chicken processors, Granny’s and Sunrise Farms, recently sent a letter to Manitoba Chicken Producers asking it to review its decision to sign the MOU. The processors subsequently withdrew the request, indicating they might have better traction in Saskatchewan, where a preliminary hearing by the provincial supervisory board is getting underway.

Supervisory boards are provincial regulatory bodies (such as the Manitoba Farm Products Marketing Council) which oversee agricultural sectors governed by provincial legislation. That includes the supply-managed egg, dairy and poultry sectors.

Industry officials worry the processors’ lobbying efforts could influence supervisory boards’ decisions on whether or not to sign the operating agreement, without which the allocation plan cannot go ahead.

“The danger is, if each supervisory board tried to renegotiate what the (chicken boards) did, then other supervisory boards would say, well, if you’re renegotiating something for your province, then we might do it for our province,” said Wayne Hiltz, Manitoba Chicken Producers executive director.

“And then we’re back to square one, except now it goes to a level of people who don’t necessarily have the same stake in the industry.”

Mike Dungate, CFC executive director, said there’s no room for further negotiations and the only thing left to do is complete the operating agreement.

“We’re trying to get the language finalized. We’re not trying to reopen the negotiations,” Dungate said by phone from Quebec City, where he was attending the Quebec chicken board’s annual meeting.

“And in our view, trying to add a regional component to what we’ve done is reopening the negotiations.”

The MOU, six years in the making, was finally signed last summer with support from the Farm Products Council of Canada, which was pushing chicken boards to reach an allocation agreement.

It allows for something called “differential growth,” which enables some provinces to get proportionally more chicken quota than others, based on their economic conditions.

Differential growth has long been a sticking point in allocating chicken quota for each of its eight-week rolling production periods throughout the year.

Provinces with rapidly growing populations, such as Alberta, complained the system was inflexible in matching supply with increased demand because it did not provide differential growth.

Alberta pulled out of CFC in late 2013 over the issue, triggering fresh negotiations for a new allocation agreement. After a number of delays and false starts, an MOU for the agreement, including a formula for differential growth, was finally hammered out last July, with CFC and all provincial chicken boards, including Alberta, signing on.

Dungate said the last-ditch efforts by processors could potentially scuttle the deal, even though they are not actually signatories to it.

“They could put it at risk,” he said.

Dungate said CFC will intervene at supervisory board hearings in Saskatchewan and B.C., saying the MOU already addresses processors’ concerns.

Despite processors’ efforts, he expressed confidence the agreement will be fully ratified later this year.

“Our goal is to get this thing across the finish line.”

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“The pressure is there,” said Jake Wiebe, Manitoba Chicken Producers vice-chair.

Wiebe said he currently pays an average of $376 a tonne for feed on his broiler farm near New Bothwell. Last July it was $312 a tonne, or 20 per cent less. Feed makes up nearly half of a chicken producer’s production costs.

Fortunately, producer prices for chicken have risen, too. The farm gate chicken price in Manitoba for the current A103 production period is $1.54.5/kg (live weight), up from $1.43.76/ kg a year ago.

Wiebe said he’s close to recovering his cost of production but it varies from producer to producer.

“I have to say that we’ve been very fortunate. I don’t want to paint a bleak picture.”

Unlike other supply-managed commodities such as dairy and eggs, Manitoba chicken prices are not regulated by a cost-of-production formula. Manitoba Chicken Producers negotiates directly with the province’s two chicken processors, Dunn Rite Food Products Ltd. and Granny’s Poultry Co-operative, to set prices for each production period, which in Manitoba is 7.4 weeks long. The A103 period expires April 23.

Along with most other provinces, Manitoba prices off Ontario’s producer price to a large extent. Because Ontario produces roughly a third of all chicken in Canada, it is traditionally a bellwether for prices.

Ontario’s producer price does reflect cost of production. It includes components for feed and chicks, which make up 70 per cent of a producer’s costs. It also includes a producer margin component.

As a result, an increase in feed prices translates into a higher value for the feed price component, resulting in a higher live price for Ontario. Since Manitoba prices off Ontario when negotiating with its processors, producer costs are more or less covered here, too.

“We have the ability to keep pace, probably more so than some of the other non-supply-managed meat commodities,” said Wayne Hiltz, Manitoba Chicken Producers general manager.

But Hiltz said there is a time lag in recovering higher feed costs, since the industry is always pricing one production period in advance.

Hiltz and Wiebe spoke ahead of the April 13 Manitoba Chicken Producers annual meeting in Winnipeg.

According to Chicken Farmers of Canada, the sharp rise in grain prices beginning last summer was a major concern for the sector. Feed prices then stabilized briefly, causing producer prices to drop slightly in 2010 from their highs in 2008 and 2009.

However, producer prices began to recover in early 2011 as feed prices started escalating again, CFC said. ron@fbcpublishing.com

———

“Wehavetheabilitytokeeppace.”

– WAYNE HILTZ, MANITOBA

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Mexican chicken processors allege U.S. producers sold chicken legs and thighs on the Mexican market below their cost of production in 2010. Among the U.S. producers named in the complaint published in the government’s official gazette were Tyson Foods Inc. and Pilgrim’s Pride Corp.

Mexican imports of U.S. chicken surged 18 per cent in the first 11 months of 2010 to 876.53 million pounds to displace Russia as the biggest buyer of U.S. chicken, according to the U.S. Department of Agriculture.

Tyson said in a statement it was not aware of any improprieties in U.S. chicken exports to Mexico, adding that exports of chicken from its U.S. plants to Mexico amounted to less than one per cent of its $1.9 billion in international chicken sales in fiscal 2010.

The chicken dispute comes as the Uni ted States and Mexico are still trying to resolve a disagreement over access for Mexican trucks to U.S. roads, as required under the North American Free Trade Agreement.

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Chicken Farmers of Ontario has placed a moratorium on interprovincial movement of chicken to stem a bidding war between processors at home and in next-door Quebec.

The moratorium, imposed six months ago, has been renewed regularly for several quota periods with no end in sight.

The issue involves chicken processors in Ontario and Quebec signing marketing agreements with producers in the other province.

CFO put a hold on new supply contracts between Ontario producers and out-of-province processors effective October 1, 2009.

Previously, Ontario and Quebec processors had raided each other’s producers, sometimes using price premiums, to gain market share at each other’s expense.

The dispute goes to the heart of supply management in which marketing boards are supposed to match production with demand.

“It creates a disruption in the ability of provincial marketing boards to operate,” said Al Mussell, a senior research associate with the George Morris Centre in Guelph, Ont.

“Try managing supply when you’ve got this phantom supply floating between provinces.

Asked whether the brouhaha is a return to the interprovincial chicken wars of the 1960s, when provinces dumped surpluses into other provinces, Mussell said, “We’re there to some extent.”

Industry officials say the issue is actually the reverse. It’s a case of processors wanting more supply and trying to pull it in from outside their borders, said Mike Dungate, Chicken Farmers of Canada general manager.

But the effect of processors and producers chasing each other around is still the same. It disrupts orderly marketing and confuses prices, Dungate said.

He and CFC chair David Fuller attended the Manitoba Chicken Producers annual meeting in Winnipeg this week.

A federal-provincial agreement governing chicken production in Canada allows for so-called differential growth in different regions, notwithstanding individual provinces’ base quota allocations that go back as far as supply management itself.

“There is a lot of discussion around our board about, do we need to inject more differential growth into the allocation setting?” said Dungate.

“The marketplace is evolving. We need to be able to let processors grow and compete without destabilizing markets.”

But whenever CFC allocates production for an upcoming seven-week period, it usually ends up in a fallback position, approving allocations equal in market share, he said.

SUPPLY PLAN

The Ontario-Quebec chicken dispute does not affect Manitoba producers directly, said Jake Wiebe, vice-chair of Manitoba Chicken Producers.

But it affects them indirectly because the Manitoba government is concerned about something similar happening here, said Wiebe, a producer from New Bothwell.

The province last year ordered the industry to develop a plan ensuring supplies of live chicken to processing plants.

It also slapped a partial freeze on producers who want to switch their deliveries from one processor to another. Producers must give 42 to 49 weeks’ notice (equivalent to six or seven production cycles) before switching processors.

The move caught the industry by surprise. Producers and processors at the time both said they hadn’t asked for it.

The restriction has effectively stopped producers from changing processors, which didn’t happen a lot before anyway, Wiebe said.

“In my opinion, they’re trying to fix something that isn’t broken.”

A provincial working committee is developing a report on ensuring adequate supplies for processors. A final version is expected soon, Wiebe said. ron@fbcpublishing.com

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“We were not

consulted.” – Wayne Hiltz, Manitoba Chicken Producers

The province has caught Manitoba broiler chicken farmers off guard by ordering them to develop a plan to ensure supplies of live chicken to processing plants.

Producers say they didn’t ask for this and the demand by the government took them completely by surprise.

“We were not consulted,” said Wayne Hiltz, Manitoba Chicken Producers’ general manager.

The move, announced by Agriculture Minister Rosann Wowchuk April 30, requires the chicken board to come up with a plan to provide the province’s two chicken processors with stable supplies of chicken.

To accomplish this, producers must give 42 to 49 weeks’ notice (equivalent to six to seven production cycles) before switching chicken deliveries from one processor to another.

Wowchuk implemented a regulatory change to impose the required notice. Hiltz said the board office received the order the next day.

The chicken board got a heads-up that the move was coming after meeting with the minister earlier in the week. Wowchuk also met separately with processor representatives to inform them.

The board has until October 2009 to consult with processors and come up with a long-term supply plan. Wowchuk said she expected a preliminary report by August.

Wowchuk called the action necessary to keep producers from shortchanging processors by switching abruptly from one to another. The previous regulation did not require either side to give notice before cancelling delivery contracts.

Now processors will have guaranteed supplies to help them make long-term marketing plans, she said.

“This will enable chicken producers to take the time to put a plan together that will bring stability to the industry,” said Wowchuk.

“We decided that the processors and producers should work together to develop a made-in-Manitoba plan that would ensure we have adequate supply of product that will enable processors in this province to move forward.”

Hiltz said the board did not know of a problem with producers switching processors, nor was it aware that processors had asked for the regulatory change to require notice.

“We were not aware that there was an initiative by the processors. Our understanding is that this is a government initiative and it was not initiated by the processors or the producers.”

Hiltz said the number of producers who switch processors “has been minimal.” Even when they do, they give two production periods’ notice, which is “all the processors ever asked for.”

Manitoba has two federally inspected chicken processors: Granny’s Poultry Co-operative (Manitoba) Ltd. and Dunn-Rite Food Products Ltd.

“NOT CLEAR”

Randy Schroeder, Granny’s board chairman, said the co-op did not ask for the change and it’s “not 100 per cent clear” why the government acted as it did.

Schroeder, a broiler breeder at Lowe Farm, said producers sometimes talk about switching processors but they don’t often do so.

A Dunn-Rite company official could not be reached for comment.

Schroeder speculated Wowchuk may be under pressure from processors in other provinces to increase chicken supplies. The recent Manitoba Chicken Producers annual meeting heard that processors in one province regularly try to access supplies in another province when local volumes fall short of demand.

Chicken Farmers of Canada next week will hold a brainstorming session on “differential growth” – that is, providing varying production allocations to regions with different growths in demand.

This is the second time this year that Wowchuk has made a unilateral change affecting a supply-managed industry. In January she dismissed the independent members of the Manitoba Milk Prices Review Commission and replaced them with civil servants. The commission is now a rubber stamp to approve fluid milk prices in the western milk pool, which includes Manitoba. ron@fbcpublishing.com

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