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An analysis of the effect of market regulation in the broiler industry in British Columbia and Washington 1974

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AN ANALYSIS OF THE EFFECT OF MARKET REGULATION IN THE BROILER INDUSTRY IN BRITISH COLUMBIA AND WASHINGTON by WENDY HOLM DIXON B.Sc, Long Island University, 1970 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE in the Department of Agricultural Economics We accept this thesis^as conforming to the required stantLarju THE UNIVERSITY OF BRITISH COLUMBIA July, 1974 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l , f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e a n d s t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d b y t h e H e a d o f my D e p a r t m e n t o r b y h i s r e p r e s e n t a t i v e s . T t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a L I n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . D e p a r t m e n t o f A g r i c u l t u r a l Economics The U n i v e r s i t y o f B r i t i s h C o l u m b i a V a n c o u v e r 8 , C a n a d a 1 ) a te August 30. 1974 Abstract The purpose of this study has been to analyze the e f f e c t of market regulation in the b r o i l e r industry in B r i t i s h Columbia and Washington State by comparing and contrasting the structure, conduct and performance of two i n s t i t u t i o n s established to provide a degree of organization by producers i n the marketing of b r o i l e r chickens. The two i n s t i t u t i o n s studied have been the B.C. B r o i l e r Marketing Board, i n the province of B r i t i s h Columbia, Canada and the Washington Fryer Commission, in the state of Washington, United States of America. An analysis of the structure and conduct of the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission has been presented. An objectives model for organized marketing in the a g r i c u l t u r a l sector has been proposed, and from this model c r i t e r i a have been chosen upon which to evaluate the market performance of the two structures with respect to organized marketing. I t has been observed that the powers held by the B.C. B r o i l e r Marketing Board are f a r more extensive than those held by the Washington Fryer Commission. I t has been further observed that the performance of the B.C. B r o i l e r Marketing Board has been primarily r e s t r i c t i v e in nature and has had serious negative effects on the market environment f o r b r o i l e r chickens in B r i t i s h Columbia. The performance of the Washington Fryer Commission has been supportive in nature, and has had a positive e f f e c t on the i market environment for b r o i l e r chickens in Washington State . In analysing the two approachs to organized marketing in the b r o i l e r indust ry , i t has been concluded that the vest ing of powerful tools of market regulat ion with primary producer groups (whose i n t e r - ests are narrowly defined) leads to i n e f f i c i e n c i e s in production and marketing which have serious ef fects on the industry as a whole. TABLE OF CONTENTS Chapter Page I INTRODUCTION 1 Terms of Reference 2 Method and Content 2 II ORGANIZED MARKETING 4 Introduction 4 An Objectives Model f o r Organized Marketing i n the A g r i c u l t u r a l Sector 9 I I I STRUCTURE 17 Introduction 17 H i s t o r i c a l Development of Marketing L e g i s l a t i o n i n Canada 17 Development of Marketing L e g i s l a t i o n i n B r i t i s h Columbia 23 General Regulations Governing Marketing Orders i n B r i t i s h Columbia 25 The B.C. B r o i l e r Marketing B o a r d — Organizational Structure 27 H i s t o r i c a l Development of Marketing L e g i s l a t i o n i n the United States 32 Development of Marketing L e g i s l a t i o n i n Washington State 36 General Regulations Governing Washington State Marketing Orders 39 The Washington Fryer Commission— Organizational Structure 41 Summary and Comparison 44 Enabling L e g i s l a t i o n 44 Organizational Structure 47 i i i i v CHAPTER P a § e IV CONDUCT 49 Introduction 49 B.C. Broiler Marketing Board 49 Regulation of Domestic Supply 50 Regulation of Imported Product 52 Other Activities 55 Washington Fryer Commission 57 Advertising and Promotion 58 Improvement of Standards and Grades . . . . 60 Research 60 Investigation and Prevention of Unfair Trade Practices 61 Summary 62 V PERFORMANCE 64 Introduction 64 Background 65 Production 71 Structures of Production 71 Returns to Producers 75 Market Conditions 83 Price 83 Supply 100 Competition 103 Channels of Distribution 113 V CHAPTER Page Relations with Processors and Retailers . . 113 Market Expansion . . . . 114 Advertising and Promotion 114 Research 115 Analysis of Factors Contributing to Observed Differences in Performance 116 Powers 116 Effects on Structures of Production . . . . 118 Effects on Returns to Producers 119 Effects on Price 120 Effects on Supply 120 Effects on Competition 120 Effects on Relationship with Processors and Retailers 121 Effects on Advertising and Promotion . . . 121 Effects on Research 122 VI EVALUATION OF PERFORMANCE 123 Introduction 123 With Respect to Stated Objectives 123 With Respect to Industry Sectors 126 Producers 126 Washington 126 British Columbia 127 Processors 128 Washington 128 vi CHAPTER P a § e B r i t i s h Columbia 129 R e t a i l e r s 129 Washington 129 B r i t i s h Columbia 130 Consumers 130 Washington 130 B r i t i s h Columbia 131 With Respect to the Concept of Organized Marketing 131 Production 132 Market Conditions 135 Channels of D i s t r i b u t i o n 141 Market Expansion 142 Conclusions 143 VII THE INFLUENCE OF PHILOSOPHICAL DIFFERENCES IN APPROACHES TO ORGANIZED MARKETING IN BRITISH COLUMBIA AND WASHINGTON STATE 145 VIII CONCLUSIONS 150 IX RECOMMENDATIONS 156 X SUMMARY 158 Bibliography 163 LIST OF TABLES Table Page 1 British Columbia Broiler Industry, Production, Gross Income and Prices, 1953-1973 66 2 Washington State Broiler Industry, Production, Gross Income and Prices, 1940-1973 67 3 Index Numbers for British Columbia Commercial Broilers, Numbers and Pounds of Production, Gross Income and Price per Pound paid to Producer 1961-1973 . . . 69 4 Index Numbers for Washington Commercial Broilers, Numbers and Pounds of Production, Gross Income and Price per Pound paid to Producer 1957-1973 . . . 70 5 British Columbia and Washington State Broiler Industry: Structure, Supply and Price 73 6 Estimates of Variable and Fixed Costs per Bird for 40,000 Birds/Cycle Broiler Operation, Br i t i s h Columbia and Washington State June 1974 78 7 Estimate of Returns and Costs per Bird for 40,000 Birds/Cycle Broiler Operation British Columbia and Washington State, June 1974 79 8 Estimate of Total Gross Returns, Costs and Net Returns per Annum for 40,000 Birds/Cycle Broiler Operation, Bri t i s h Columbia and Washington State 80 9 Estimates of Capital Investment Requirements and Interest Costs per Annum for a 40,000 Bird/Cycle Broiler Operation in Bri t i s h Columbia and Washington State June 1974 82 10 Weighted Annual Average Price per Pound Paid to Broiler Producers, Canada and the United States 1960-1973 . 85 11 Index Values of Price per Pound Paid to Broiler Producers in British Columbia and Washington State . 90 12 Year to Year Changes in Annual Average Price per Pound Paid to Broiler Producers British Columbia and Washington State, 1957-1972 . 93 v i i vi i i Table Page 13 Monthly Weighted Average Price per Pound paid to Broiler Producers, Canada and the United States 1973 94 14 Producer, Wholesale and Retail Prices and Ranges of Price for Broilers. Vancouver and Montreal January-June 1974 98 15 Annual Average Price per Pound Paid to Broiler Producers, Washington State.and Arkansas, 1963-1973 106 16 Annual Average Price per Pound Paid to Broiler Producers, Vancouver and Montreal, 1961-1973. 108 17 Annual Average Wholesale Broiler Price per Pound Vancouver and Montreal, 1965-1973 I l l 18 Summary of Differences Observed in the British Columbia and Washington Broiler Markets 117 LIST OF FIGURES Figure Page 1 E f f e c t of S h i f t s i n I n e l a s t i c Supply and Demand upon P r i c e 7 2 Quota D i s t r i b u t i o n B.C. B r o i l e r Marketing Board, June 1974 14 3 Annual Gross Income to B r o i l e r Producers, B r i t i s h Columbia and Washington State, 1953-1973 76 4 Grade A Chicken P r i c e s , Producer and R e t a i l , Canada and the United States by Months January 1960 to Ju l y 1963 84 5 B r o i l e r P r i c e s ; Annual Weighted Average P r i c e Paid to B r o i l e r Producers—Canada and the United States 1960-1973 86 6 Average Annual P r i c e Paid to B r o i l e r Producers B r i t i s h Columbia and Washington State, 1940-1973 . . 87 7 Index Values—Annual Average P r i c e per Pound paid to B r o i l e r Producers, B r i t i s h Columbia and Washington State 89 8 Index Values of Annual P r i c e per Pound Paid to B r o i l e r Producers B r i t i s h Columbia and Washington State . . 91 9 Monthly Weighted Average Pr i c e s Paid to Producers Canada and United States, 1973 . . . . . . . . 95 10 Weekly P r i c e s and Ranges of P r i c e s , R e t a i l , Wholesale and Producer. Vancouver and Montreal January 1 - June 1, 1974 99 11 Annual B r o i l e r Production B r i t i s h Columbia and Washington State 1953-73 101 12 Index Values for Number of B r o i l e r s Produced B r i t i s h Columbia and Washington State, 1953-1973 . . 102 13 Annual Average P r i c e Paid to B r o i l e r Producers Canada and B r i t i s h Columbia 1966-1973 104 14 Annual Average P r i c e Paid to B r o i l e r Producers, United States and Washington State 1960-1973 . . . 105 1 X X Figure Page 15 Annual Average P r i c e Paid to B r o i l e r Producer Washington State and Arkansas. 1963-73 107 16 Annual Average P r i c e Paid to B r o i l e r Producer Vancouver and Montreal, 1953-73 109 17 Annual Average Wholesale P r i c e s , Vancouver and Montreal 1965-1973 112 18 E f f e c t of Supply Control on P r i c e and Resource Use . . . 136 19 E f f e c t of Overestimation of Demand i n a Supply Control Program 138 20 Monopoly Rents, Consumer Costs and Resource A l l o c a t i o n Under Supply Control 144 Acknowledgments Acknowledgment i s g r a t e f u l l y given to a l l those who so graciously contributed to t h i s research, i n p a r t i c u l a r to Dr. Peter L. Arcus, whose continued enthusiasm, encouragement and support has been deeply appreciated. Je veux qu'il n'y ait si pauvre paysan en mon royaume qu'il n'ait tous les dimanches sa poule au pot. Henri IV CHAPTER I INTRODUCTION Since factors i n f l u e n c i n g the market environment are often d e l i c a t e l y balanced, the concept of "market regulat i o n " i s an extremely c o n t r o v e r s i a l one. When the market being regulated f a l l s within the a g r i c u l t u r a l sector, the impli c a t i o n s of market reg u l a t i o n become in c r e a s i n g l y important. Food i s a u n i v e r s a l commodity. The market fo r a g r i c u l t u r a l goods i s of concern to everyone. While we l i v e i n an age of increasing technology, the production of food has not changed s u b s t a n t i a l l y . Although improvements i n methods of production can and are being sought, through the use of herbicides and p e s t i c i d e s , f e r t i l i z e r s , animal husbandry techniques and increased mechanization, c e r t a i n b a s i c factors remain fixed- Society i s s t i l l very much dependent upon the farm sector. This f a c t gives r i s e to both demands f o r regulation and protests against r e g u l a t i o n . I d e a l l y , the regulation of a g r i c u l t u r a l markets should provide benefits to a l l sectors of society by providing a degree of s t a b i l i t y to food production and by providing the best p o s s i b l e product i n the most e f f i c i e n t manner. P r a c t i c a l l y applied, however, th i s i s often d i f f i c u l t to a t t a i n . Since regulation normally implies l e g a l authority, the establishment of market reg u l a t i o n i s usually a function of the government. Since the sector with the greatest degree of vested i n t e r e s t (and p o l i t i c a l voice) i n s t a b i l i z i n g production of 2 a s p e c i f i c a g r i c u l t u r a l good i s often the farm sector, the implementa- t i o n of that regulation i s frequently vested with the producers. The question of whether a producer based approach to organized marketing precludes an objective approach to the problem of market re g u l a t i o n i s often raised. Through an i n v e s t i g a t i o n of e x i s t i n g systems of organized marketing i n the a g r i c u l t u r a l sector, we may approach a be t t e r under- standing of the problem. Terms of Reference The purpose of t h i s study has been to compare and contrast the struc t u r e , conduct and performance of two i n s t i t u t i o n s e stablished to provide a degree of organization by producers i n the marketing of b r o i l e r chickens. The two i n s t i t u t i o n s studied are the B.C. B r o i l e r Marketing Board, i n the province of B r i t i s h Columbia, Canada and the Washington Fryer Commission, i n the state of Washington, United States of America. Method and Content Before a comparison of approaches to organized marketing may proceed, a d e f i n i t i o n of organized marketing must f i r s t be established. A discussion of the concepts of organized marketing, and t h e i r a p p l i c a - t i o n to the a g r i c u l t u r a l sector, i s presented i n Chapter I I . In comparing the two i n s t i t u t i o n s , the f i r s t basis f or compari- son i s a s t r u c t u r a l one. Since both the Board and Commission derive t h e i r authority from governmental l e g i s l a t i o n , t h i s f i r s t e n t a i l s a 3 review of Canadian and U.S. marketing l e g i s l a t i o n enacted p r i o r to the establishment of the two i n s t i t u t i o n s . A discussion of the organiza- t i o n a l structure of the two groups, inc l u d i n g t h e i r respective powers and r e s p o n s i b i l i t i e s i s presented and contrasted i n Chapter I I I . The second area of comparison i s that of conduct. The conduct of the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission i s discussed and contrasted i n Chapter IV. The t h i r d area of comparison i s that of performance. An analysis of the performance of the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission, as w e l l as a discussion of the f a c t o r s c o n t r i b u t i n g to the d i f f e r e n c e s i n observed performance between the two i n s t i t u t i o n s , i s presented i n Chapter V. A comparative evaluation of performance of the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission with respect to; (a) t h e i r stated objectives, (b) e f f e c t s on industry sectors and (c) the p r i n c i p l e s of organized marketing, i s presented and discussed i n Chapter VI. While an evaluation of the two groups may be drawn on the basis of observed performance, there are c e r t a i n p h i l o s o p h i c a l d i f f e r e n c e s between the United States and Canada which influence the approach to marketing of b r o i l e r products i n each area. A discussion of these factors i s presented i n Chapter VII. The conclusions and recommendations of t h i s report are presented i n Chapters VII and IX. A b r i e f summary of the findings may be found i n Chapter X. CHAPTER II ORGANIZED MARKETING Introduction Before we can hope to evaluate any approach to organized marketing i n the a g r i c u l t u r a l sector, we must f i r s t have a b a s i c understanding of the philosophy behind an organized marketing approach. The term "organized marketing" i s used to describe a v a r i e t y of market- ing systems, some of which, when applied, f a l l f a r short of achieving the objectives of an organized marketing approach. Why does t h i s occur? Very often the problem seems to be one of confusing the means with the ends; the o r i g i n a l goals of marketing becoming l o s t i n the implementa- t i o n of i n c r e a s i n g l y complex regulatory systems. Marketing i s a simple concept. Expressed i n the most b a s i c terms, marketing i s the bringing together of two p a r t i e s who wish to exchange goods or s e r v i c e s . The processes leading to the exchange of beaver p e l t s for tools and equipment are as much a marketing function as the massive promotional campaigns undertaken by a large manufacturer i n introducing a new l i n e of photocopying equipment. In both cases, a person who i s i n a p o s i t i o n to supply a good or se r v i c e i s seeking a person with whom they can exchange that good or s e r v i c e f o r one which they cannot supply to themselves. When two people i n t h i s p o s i t i o n are brought together, both r e q u i r i n g r e c i p r o c a l s e r v i c e s , then e f f e c t i v e marketing has occurred. In the very simplest of socio-economic u n i t s — 4 5 fo r example, an i s o l a t e d t r i b e i n A f r i c a — t h e demand f o r goods and services i s matched by the supply. In the market place, the suppliers of goods and services are known to those who require them, and the marketing process i s extremely s i m p l i f i e d . As we look at i n c r e a s i n g l y complex socio-economic s t r u c t u r e s , the marketing process i t s e l f becomes more complicated, and access to market information becomes more d i f f i - c u l t to obtain. As the market place enlarges, increased demands are made on e f f e c t i v e channels of d i s t r i b u t i o n , and the producer of a product i s often separated from the f i n a l purchaser of that product by seve r a l intermediate handlers. As producers of goods or services become f a r t h e r removed from the ultimate consumer, they move towards a more disadvantaged p o s i t i o n with respect to market knowledge, and i n e f f i c i e n c i e s may occur. The producers and consumers of various goods are normally not known to one another, and neither are the l e v e l s of supply and demand f o r t h e i r goods and se r v i c e s . Operating with le s s than p e r f e c t market knowledge, supply often exceeds or f a l l s short of demand, crea t i n g surpluses and d e f i c i e n c i e s . In a competitive s i t u a t i o n , the mechanism of p r i c e w i l l eventually cause supply and demand to reach an equilibrium. In imper- f e c t l y competitive s i t u a t i o n s , however, t h i s often gives r i s e to market i n e f f i c i e n c i e s . An example of th i s s i t u a t i o n today i s the a g r i c u l t u r a l i ndustry. In the s t r i c t e s t economic sense, p e r f e c t competition i s the most e f f i c - i e n t industry structure. As we have observed, the problems of achieving a p o s i t i o n of perfect competition i n any industry are increased as the 6 socio-economic structure becomes in c r e a s i n g l y complex. In the a g r i c u l - t u r a l sector, these problems are compounded by the large gap between producer and consumer ( r e s u l t i n g i n decreased market awareness), the p o t e n t i a l f o r wide variance i n production e f f i c i e n c y , and the inherent i n e l a s t i c i t y of demand for food. Farm incomes f l u c t u a t e to a f a r greater degree than do non- farm incomes, but farm production i s remarkably more sta b l e than industry production."'" While the demand curve faced by the i n d i v i d u a l a g r i c u l t u r a l producer i s r e l a t i v e l y e l a s t i c , the industry demand curve i s r e l a t i v e l y i n e l a s t i c . As may be observed i n Figure 1, p r i c e may be s i g n i f i c a n t l y a f f e c t e d by a small change i n supply or demand, due to the i n e l a s t i c i t i e s of these curves. This s i t u a t i o n has a d i r e c t e f f e c t on farm incomes. Net farm income may be expressed as p r i c e times quantity of output le s s cost of production. Since quantity of output and cost of production are r e l a t i v e l y s t a b l e , farm incomes tend to f l u c t u a t e with p r i c e changes. While i n d i v i d u a l producers of a s p e c i f i c commodity are i n a r e l a t i v e l y competitive p o s i t i o n , and the output of any one i n d i v i d u a l producer i s normally too small to exert any influence on market p r i c e , aggregate behaviour produces dramatic e f f e c t s on p r i c e . Given t h i s s i t u a t i o n , i f the majority of farmers produce without e f f e c t i v e communication of market information, f l u c t u a t i o n s i n supply, r e s u l t i n g i n proportionately wider f l u c t u a t i o n s i n p r i c e , reduce the Paul A. Samuelson and Anthony Scott, Economics—An Introductory A n a l y s i s , Third Canadian E d i t i o n , Toronto, McGraw H i l l Co. of Canada Ltd., 1971, p. 496. PRICE i L S = Supply D - Demand D^= S h i f t (increase) i n Demand D^= S h i f t (decrease) i n Demand S^= S h i f t (decrease) i n Supply S^= S h i f t (increase) i n Supply E = Market E q u i l i b r i u m at Demand D and Supply S P = E q u i l i b r i u m p r i c e at Demand D and Supply S P^= E q u i l i b r i u m p r i c e at Demand D^ Supply S or Supply S^ Demand D P^= E q u i l i b r i u m p r i c e at Demand D^ Supply S or Supply S^ Demand D QUANTITY Figure 1. E f f e c t of S h i f t s i n I n e l a s t i c Supply and Demand on P r i c e Due to i n e l a s t i c i t i e s of supply and demand, a small s h i f t i n curve w i l l r e s u l t i n a marked change i n p r i c e l e v e l s . 2 In a g r i c u l t u r e , short run supply i s r e l a t i v e l y i n e l a s t i c due (a) the attempt, on the farmer's part, to maintain production when p r i c e i s low to maintain family income, and (b) the r e l a t i v e l y large proportion of f i x e d f a c t o r s of pro- duction which do not lend themselves to a l t e r n a t e use conversion. Since many of these costs cannot be eliminated by reducing quantity when the p r i c e f a l l s below average cost, the farmer w i l l produce to cover average v a r i a b l e cost. In a g r i c u l t u r e , demand i s r e l a t i v e l y i n e l a s t i c since aggregate food consumption does not vary s i g n i f i c a n t l y i n response to p r i c e . e i t h e r to: Paul A. Samuelson and Anthony Scott, Economics—An Introductory A n a l y s i s , p. 496. 8 farmer to the p o s i t i o n of a " p r i c e taker." While each farmer may be considered to be competitive with respect to other producers, i n a s t r i c t economic sense they are not, for perfect competition implies, among other things, that each producer operate at the point at which marginal cost equals p r i c e . Due to the v a r i a t i o n i n marginal costs, a t t r i b u t a b l e to diff e r e n c e s i n management expertise and f a c t o r p r o d u c t i v i t y , the sum of the industry marginal cost curves (the industry supply curve) may d i f f e r s i g n i f i c a n t l y from those of any one producer. This f a c t o r contributes to v a r i a t i o n i n returns received by producers. What are the a l t e r n a t i v e s to the a g r i c u l t u r a l producer? When faced with surplus production, demand cannot be increased e f f e c t i v e l y by i n d i v i d u a l ' s e f f o r t s . A d v e r t i s i n g and promotional costs are normally too large to be borne by the i n d i v i d u a l producer. Since a g r i c u l t u r a l goods i n a given sector are b a s i c a l l y homogeneous, i n d i - v i d u a l producer expenses^in t h i s area would serve, at best, to increase aggregate demand rather than increasing demand f o r i n d i v i d u a l goods or services s u f f i c i e n t to cover expenses incurred. Since the farmer quite often cannot r e a d i l y convert his resources to a l t e r n a t i v e uses when p r i c e f a l l s below average cost, he i s often faced with the prospect of producing to cover average v a r i a b l e cost. I f entry and e x i t i s f a c i l i - tated, widely f l u c t u a t i n g prices provide an inc e n t i v e f o r speculation, adding further i n s t a b i l i t y to an already unstable market. These problems have led many a g r i c u l t u r a l producers to adopt organized marketing approaches as an attempt to resolve common problems. 9 The primary goal of the producer-oriented approach to organized marketing i s to increase the market power of producers. By approaching th i s on a c o l l e c t i v e l e v e l , resources may be employed which were previously unavailable to i n d i v i d u a l producers. The following model i s presented as a guideline to be used i n evaluation of the effectiveness of organized marketing approaches i n the a g r i c u l t u r a l sector. An Objectives Model f o r Organized Marketing i n the A g r i c u l t u r a l Sector 1. Improve Production Methodology Through the improvement of production methodology, the producer i s able to o f f e r a higher q u a l i t y , competitively p r i c e d product, thereby improving h i s market p o t e n t i a l . A g r i c u l t u r e t r a d i t i o n a l l y experiences wide v a r i a t i o n s i n e f f i c i e n c y of i t s members. This i s due l a r g e l y to the v a r i a t i o n s i n management expertise and i n productive capacity of resources employed. These conditions often lend themselves to the creation of a sector which includes both marginal producers and extremely e f f i c i e n t producers. By decreasing the number of marginal producers, through attempts to increase t h e i r p r o d u c t i v i t y or to f a c i l i - tate t h e i r t r a n s f e r i n t o other sectors of the economy, the o v e r a l l e f f i c i e n c y of the producing sector may be raised. While the i n d i v i d u a l producer often lacks the means and expertise to i n v e s t i g a t e areas of improved production methodology, these avenues may be more r e a d i l y explored under an organized marketing approach. Problems common to a large majority of producers may be more r e a d i l y 10 i d e n t i f i e d and research e f f o r t s towards t h e i r s o l u t i o n more e a s i l y undertaken. The channels of communication e x i s t i n g among producers are often poorly defined. While information exchange may occur between lar g e , e f f i c i e n t operators, those of l e s s e r e f f i c i e n c y are often i s o l a t e d from t h i s contact. Through the promotion of increased coopera- t i o n and communication under an organized marketing approach, expertise i n the area of production technology may be more r e a d i l y shared by the sector as a whole. The improvement of product q u a l i t y i s also a b e n e f i t to be derived from organized marketing. Since i n d i v i d u a l producers lack the a b i l i t y to exert c o n t r o l upon the o v e r a l l patterns of the industry, improved product standardization and grading i s d i f f i c u l t to accomplish on an i n d i v i d u a l l e v e l . This becomes f a r ea s i e r to achieve on a c o l l e c t i v e l e v e l . The be n e f i t s of improved product standardization and grading are many. When proper standards and grades are established, the i n d i v i d u a l producer i s i n a f a r b e t t e r p o s i t i o n to determine the type of product he should produce. Since grading i s normally coordinated with p r i c e l e v e l s , the producer may more e a s i l y approximate h i s income from any given production cycle. By producing a product which i s of higher q u a l i t y and more uniform consistency, the market p o t e n t i a l f o r that product may be more f u l l y r e a l i z e d . Improved product standardiza- ti o n and grading b e n e f i t s a l l sectors of the industry. I t reduces the processor's costs, since he i s presented with a more uniform product. The r e t a i l e r i s presented with a more standard, marketable product. The 11 consumer ben e f i t s from the a b i l i t y to d i s t i n g u i s h product q u a l i t y by established grading standards, and b e n e f i t s from the o v e r a l l product improvement. Through the promotion of improved e f f i c i e n c y , production method- ology, and information dissemination, r e s u l t i n g i n decreased production costs as w e l l as establishment of guidelines f o r product standardization and grading thereby improving product q u a l i t y , the organized marketing approach may contribute s i g n i f i c a n t l y to increasing the market power of the producer through production improvement. 2. Improve Response to Market Conditions I t i s often d i f f i c u l t f o r the i n d i v i d u a l a g r i c u l t u r a l producer to e f f e c t i v e l y forecast supply and demand. As was i l l u s t r a t e d i n the previous s e c t i o n , f l u c t u a t i o n s i n supply i n the a g r i c u l t u r a l industry have a very marked e f f e c t on p r i c e . While the output of an i n d i v i d u a l producer i s normally i n s u f f i c i e n t to a f f e c t p r i c e levels,, the aggregate behaviour of the industry can r e s u l t i n wide f l u c t u a t i o n s i n p r i c e i f supply i s not stable. Through the e f f o r t s of an organized marketing approach, market conditions such as supply and demand may be more accurately predicted and communicated to the producing sector. With an improved knowledge of market conditions, producers are i n a be t t e r p o s i t i o n to react e f f e c t i v e l y to market conditions through e f f i c i e n t production scheduling, thereby increasing s t a b i l i t y and growth and improving t h e i r p o s i t i o n i n the market. Another contribution of organized marketing i s the u n i f i c a t i o n of goals and ob j e c t i v e s. Through a c o l l e c t i v e approach, an increased 12 awareness of long and short range goals may be achieved. Through a greater understanding and integration of the tw,o, a greater degree of cooperation in response to market conditions may be attained. By permiting the agricultural producer to more effectively react to market conditions, and by promoting an integration of short and long range objectives for the producing sector as a whole, organized marketing may contribute to increasing producer market power by improving response to market conditions. 3. Improve Channels of Distribution Depending upon the type of product being produced, channels of distribution may be extremely complex. It is often d i f f i c u l t for the individual producer to assess the effectiveness of these channels, or to exercise any influence in increasing their responsiveness to his needs. Through a unified approach to the question of transportation, storage, and handling, the organized marketing approach may increase the efficiency of these channels in the marketing of agricultural products. Through improved communications with processors and retailers, wherein mutual problems may be discussed and resolved, producers are provided the benefit of ensuring orderly and ef f i c i e n t flow of their product from farm to consumer. By f a c i l i t a t i n g more efficient transportation, storage and handling of the product, as well as improving communication with pro- cessors and retailers, organized marketing may contribute to the market power of producers by improving their channels of distribution. 13 4. Expand Markets The c o n t r i b u t i o n of o rgan i zed market ing to i n c r e a s e d market expansion may be ev idenced i n s e v e r a l a r e a s . Through the combined resources of the producer g roup , a d v e r t i s i n g and p r o m o t i o n a l programs can be undertaken which would have been i m p o s s i b l e on an i n d i v i d u a l l e v e l . Research and development i s of pr ime importance i n promot ing market expans ion . Research i n the a rea of consumer p r e f e r e n c e and market d e l i n e a t i o n i s of extreme importance i n deve lop ing market p o t e n t i a l . Whi le one may expect tha t t h i s i n f o r m a t i o n shou ld be c o l l e c t e d on the r e t a i l l e v e l and passed back to the p r o d u c e r , the u n d e r l y i n g assumption i s t h a t the r e t a i l e r w i l l have as much v e s t e d i n t e r e s t i n the product as the producer of t h a t p r o d u c t . Th is assumption i s , i n f a c t , r a r e l y t r u e . N o r m a l l y , the commodities of any one producer group represent a very s m a l l segment of the t o t a l p r o f i t s to the r e t a i l e r . R e t a i l s a l e s r e p r e s e n t e x a c t l y t h a t , r e t a i l s a l e s . They are not n e c e s s a r i l y an e f f e c t i v e measure of consumer p r e f e r e n c e nor of market p o t e n t i a l . De- pending upon how the r e t a i l s a l e s s t a t i s t i c s are c o m p i l e d , they may g i ve no i n d i c a t i o n of market d e l i n e a t i o n . Th is i n f o r m a t i o n must be sought through channels of o rgan i zed m a r k e t i n g . The i n v e s t i g a t i o n of p o t e n t i a l new markets i s p a r t i c u l a r l y impor tant i n the a g r i c u l t u r a l s e c t o r . D e s p i t e the s o p h i s t i c a t i o n of techniques used to determine supp ly and demand, o c c a s i o n a l s u r p l u s e s can and do occur due to the r e l a t i v e l y l ong p r o d u c t i o n c y c l e s found i n a g r i c u l t u r e . P r o d u c e r s , a c t i n g i n d e p e n d e n t l y , o f t e n have l i t t l e c h o i c e 14 but to s e l l t h e i r product as quickly as they can (hoping that t h e i r surplus w i l l not a f f e c t t h e i r r e t u r n s ) , s e l l the product at a depressed p r i c e , or hold the product for marketing at some future date (providing the product i s non-perishable over time and that storage f a c i l i t i e s are a v a i l a b l e ) . Through increased f a c i l i t i e s of research and development a v a i l a b l e through an organized marketing approach, secondary markets fo r temporary surplus may be sought, thereby maintaining the s t a b i l i t y of domestic production. Development of p o t e n t i a l future markets should not be construed to be merely a re a c t i o n to surplus. Often, through changes i n the pro- cessing or packaging of the product, extremely p r o f i t a b l e new markets can be r e a l i z e d . Through e f f o r t s devoted to market development and new product research, t h i s p o t e n t i a l may be optimized. By embarking upon market research and development, programs which include areas of research such as consumer preference, market d e l i n e a t i o n , development of p o t e n t i a l markets and new product research, as w e l l as improved e f f o r t s i n the area of a d v e r t i s i n g and promotion, organized marketing improves market power of the producers by in c r e a s i n g market expansion. This model can be summarized as follows: Goal: To increase the market power of producers by functioning i n a c o l l e c t i v e fashion to: I Improve production decrease production costs through improved e f f i c i e n c y 15 improved methodology improved information dissemination/shared technology improve product quality standardization . grading II Improve response to market conditions a b i l i t y to effectively react to changes in supply demand integration of long and short range goals III Improve channels of distribution transportation, storage and handling improved communication with processors improved communication with retailers IV Expand Markets advertising and promotion . market research and development consumer preferences market delineation development of potential markets new product research While a theoretical objectives model for organized marketing in the agricultural sector has been presented, the practical application of these concepts is often d i f f i c u l t to attain. There i s , currently, a great deal of controversy surrounding existing approaches to organized marketing in the agricultural sector. To achieve many of the goals out- lined in the model, a degree of control over individual producer behaviour is required. Establishing the correct degree of control is a very d i f f i c u l t 16 task. I f c o n t r o l becomes excessive, then the functions of organized marketing may become i n h i b i t o r y rather than expansive. I f i n s u f f i c i e n t c o n t r o l i s provided, then many of the goals may not be f u l l y r e a l i z e d . Through an i n v e s t i g a t i o n of the st r u c t u r e , conduct and perfo r - mance of two approaches to organized marketing i n the a g r i c u l t u r a l industry, we may attempt to determine how th i s problem has been approached. Through a comparison of the performance of the two approaches on the basis of the objectives of organized marketing presented i n t h i s chapter, each approach to organized marketing may be evaluated. CHAPTER I I I STRUCTURE Introduction In contrasting the approaches to organized marketing taken by the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission i n the b r o i l e r i n d u s t r i e s of B r i t i s h Columbia and Washington, r e s p e c t i v e l y , the f i r s t area of comparison i s that of structure. H i s t o r i c a l Development of Marketing L e g i s l a t i o n i n Canada In Canada, the stimulus to cooperative marketing i n the f i r s t instance, . . . and then to the pressure f o r producer c o n t r o l l e d marketing boards, has been the economic advantage of a close and d i r e c t r e l a t i o n s h i p to markets. By thrusting forward to the c e n t r a l market through cooperation, the farmer i s i n a b e t t e r p o s i t i o n to organize his productive enterprise according to market r e s u l t s which he i s i n a p o s i t i o n to d i s t i n g u i s h and i n t e r p r e t . 1 While t h i s statement expresses the ultimate aims of a cooperative marketing approach i n Canada, the more immediate impetus towards organ- ized marketing was often, as i n the case of the apple growers i n B r i t i s h Columbia i n the 1920's, an attempt to achieve returns, at l e a s t equal to the cost of production. L. E. Poetschke and W. M. MacKenzie, The Development of Producer Marketing Boards i n Canadian A g r i c u l t u r e , June 1956, Alb e r t a , Department of P o l i t i c a l Economy, Un i v e r s i t y of Al b e r t a , p. 8. 17 18 In the early 1930's, a b i l l was drafted by the f e d e r a l government which represented the f i r s t attempt, on a f e d e r a l l e v e l , to e s t a b l i s h a cooperative approach to a g r i c u l t u r a l production and marketing. I t proposed the establishment of a Dominion Marketing Board, which was to have extensive powers to regulate and control the marketing of a g r i c u l - t u r a l products, and to delegate some or a l l of these powers to l o c a l ( p r o v i n c i a l ) boards organized by producer groups. Only those schemes wherein a s i g n i f i c a n t proportion of the product was marketed e i t h e r i n t e r p r o v i n c i a l l y or i n export trade were to come under the j u r i s d i c t i o n of the Dominion Board. The Dominion Board was to have the authority to vest p r o v i n c i a l boards under i t s j u r i s d i c t i o n with the power to c o n t r o l i n t e r p r o v i n c i a l and export product movement, while the r e g u l a t i o n of i n t r a p r o v i n c i a l product movement was to be granted under p r o v i n c i a l authority. In those areas where l o c a l organization was d i f f i c u l t to e s t a b l i s h , the Dominion Board was empowered to act d i r e c t l y . The Dominion Board had the authority (tr a n s f e r a b l e to l o c a l branches where necessary) to regulate or to r e s t r i c t imports i n competition with a regulated product, however t h i s authority did not apply to competing goods from other provinces. They were also authorized to d i r e c t product to export markets where oversupply endangered l o c a l p r i c e s . The b i l l required compulsory l i c e n c i n g of a l l producers i n any area under the j u r i s d i c t i o n of the Board to obtain c o n t r o l of marketing, quantity and q u a l i t y of product and to equalize producer returns. The power of the Board to investigate marketing conditions and practices 19 included the authority to prosecute for any attempts to obtain what they deemed excessive margins or for other p r a c t i c e s which they considered i n j u r i o u s to trade. This was intended (a) to increase the e f f i c i e n c y of d i s t r i b u t i o n by b r inging the producer i n t o c l o s e r contact with the consumer, thereby e l i m i n a t i n g waste caused by delay i n the product reaching the market, (b) to q u e l l the suspicions of producers (by a c t u a l i n v e s t i g a t i o n of the marketing process) and to give them a closer view of the operations involved i n marketing, (c) to eliminate mutually destructive competition among producers, and (d) to s t a b i l i z e the domestic market and protect i t further from i n t e r f e r e n c e by e s t a b l i s h i n g . . 2 import r e s t r i c t i o n s . In J u l y of 1934, t h i s b i l l was enacted into law as the Natural Products Marketing Act. In the f i r s t seventeen months from i t s i n c e p t i o n , the Board recommended twenty-two schemes to the Governor i n Council, fourteen of which were accepted and remained i n operation u n t i l 1937. At that time, following a challenge, the P r i v y Council declared the Act u l t r a v i r e s of the Dominion government, " . . . on the grounds that i t i n f r i n g e d upon p r o v i n c i a l j u r i s d i c t i o n over matters of property and c i v i l r i g h t s and i n d i v i d u a l forms of trade and commerce confined to the provinces." Following t h i s d e c i s i o n , three of the e x i s t i n g schemes continued operation under separate f e d e r a l acts, and L. E. Poetschke and W. M. MacKenzie, The Development of Producer Marketing Boards i n Canadian A g r i c u l t u r e , p. 9 f f . o C. F. Perkin, "The Ontario Marketing Boards," Journal of Farm Economics, Vol. XXXII, No. 4 (November 1951), p. 969. 20 nine schemes were transferred to the provinces and continued under p r o v i n c i a l l e g i s l a t i o n . In 1938, the Chamber of A g r i c u l t u r e recommended to the provinces that they e s t a b l i s h t h e i r own enabling acts, and suggested to the dominion government that they enact l e g i s l a t i o n to permit the regulation of i n t e r p r o v i n c i a l and export trade. By 1940, a l l provinces except Quebec had passed some form of marketing l e g i s l a t i o n , and the Chamber of A g r i c u l t u r e approached the Canadian Government on the question of f e d e r a l marketing l e g i s l a t i o n . This l e d to the passage of the A g r i c u l t u r a l Products Marketing Act (Canada) i n 1949. This Act provided f o r p r o v i n c i a l boards to p e t i t i o n the f e d e r a l government f o r the authority to exercise regulatory powers, when s e l l i n g t h e i r product outside of the province or outside of Canada, s i m i l a r to those they held f o r the product wi t h i n the province. Since without the A g r i c u l t u r a l Products Marketing Act (Canada), pro- v i n c i a l l e g i s l a t i o n pertained only to the sale of product wi t h i n the province, the authority of the boards was v a s t l y extended by th i s Act. They could now regulate the movement of product within and without the province, as w e l l as regulate q u a l i t y , quantity and minimum p r i c e . D i f f i c u l t i e s i n i n t e r p r o v i n c i a l trade continued however, and were h i g h l i g h t e d by a s i t u a t i o n a r i s i n g i n the l a t e 1960's and ea r l y 1970's when " d i f f e r e n t i a l patterns of production and consumption i n some commodities, p a r t i c u l a r l y s h e l l eggs and b r o i l e r chickens, gave r i s e to p r i c e d i f f e r e n t i a l s between provinces which exceeded the cost of transportation."'* This s i t u a t i o n was due, i n part, to the p o l i c i e s of some of the p r o v i n c i a l boards, as w e l l as excess supplies of feed grains i n the p r a i r i e provinces between 1969 and 1971. These p r i c e d i f f e r e n t i a l s l e d to increased i n t e r p r o v i n c i a l movement of commodities, and attempts by the p r o v i n c i a l boards to c u r t a i l t h i s movement to protect l o c a l markets. The ensuing c o n f l i c t has been r e f e r r e d to as the "chicken and egg war." The f e d e r a l government, i n an attempt to r e c o n c i l e the problems, and to f a c i l i t a t e a more glo b a l organization of production and marketing of poultry products, 5 drafted B i l l C-197 i n March of 1970. The b i l l f a i l e d a f t e r the second reading and was reintroduced i n the f a l l session of the l e g i s l a t u r e (September 1970) as B i l l C-176. A f t e r much discu s s i o n and controversy surrounding the int e n t of the l e g i s l a t i o n , i t was enacted on January 11, 1972 as the Farm Products Marketing Agencies Act. The Act provided f o r three i n s t i t u t i o n s to govern the marketing of farm products, a National Farm Products Marketing Council, Farm Products Marketing Agencies, and Farm Products Marketing Plans.^ The functions of the National Farm Products Marketing Council are to advise the M i n i s t e r of A g r i c u l t u r e on the establishment and operation of the Farm Products Marketing Agencies, to monitor the a c t i v i t i e s of the H Peter L. Arcus, "The Farm Products Marketing Agencies Act of 1972," Canadian Journal of A g r i c u l t u r a l Economics, Vol. 20, No. 2 (July 1972), p. 98. 5 R. M. A. Loyns and A. Pursaga, unpublished manuscript. ^ Peter L. Arcus, op. c i t . , p. 98. 22 Agencies to insure that t h e i r a c t i v i t i e s conform to the goals established for them, to a s s i s t the Agencies i n the development of more e f f e c t i v e marketing s t r a t e g i e s i n the area of i n t e r p r o v i n c i a l and export trade, and to act as a l i a i s o n between f e d e r a l and p r o v i n c i a l governments. The Farm Products Marketing Agencies, i f and when esta b l i s h e d , are commodity oriented. Their goal, as set f o r t h i n the Farm Products Marketing Agencies Act, i s to " . . . promote a strong, e f f i c i e n t and competitive production and market industry f o r the regulated product or products, having due regard to the i n t e r e s t s of producers and con- sumers of the regulated product."^ An agency may be vested with the authority to purchase product under t h e i r j u r i s d i c t i o n , prepare and implement marketing plans, act for a province i n the sale of the product i n i n t e r p r o v i n c i a l or export trade, enter i n t o agreement with the provinces with respect to i n t r a p r o v i n c i a l trade, c o l l e c t fees and le v i e s on the regulated product, and adve r t i s e , promote and research new markets. The Farm Products Marketing Plans, i f and when authorized by the Governor i n Council, may provide f o r the determination of producers of the regulated product, the s p e c i f i c a t i o n of acts which c o n s t i t u t e marketing, the establishment of marketing agreements to include c o n t r o l g of quantity, p r i c e , time, and place f o r any and a l l grades of regulated product, the a b i l i t y to conduct product r e c e i p t pools, and the l i c e n c i n g Peter L. Arcus, op. c i t . , p. 100. Quantity r e s t r i c t i o n s apply only to poultry and eggs. 23 of producers of the regulated products, as w e l l as the imposition and c o l l e c t i o n of taxes. When quota regulation and supply i s authorized, i n i t i a l p r o v i n c i a l quotas are to be a l l o t t e d on the basis of the r a t i o of production i n the s p e c i f i e d area to t o t a l Canadian production f o r f i v e years immediately p r i o r to the inception of the Plan. Expansion of quota i s to be a l l o t t e d on the basis of comparative advantage parameters. While t h i s Act was established s p e c i f i c a l l y to allow f o r the regu l a t i o n of poultry meats, other farm products may be included under the Act i f a majority of Canadian producers request that an agency be created. The Act s p e c i f i c a l l y excludes products covered by the Canadian Wheat Board Act and the Canadian Dairy Commission Act. I t does not assume regulation of a product not involved i n i n t e r p r o v i n c i a l and/or i n t e r n a t i o n a l trade. Since the inception of the Act, two Agencies have been e s t a b l i s h e d — o n e f o r eggs and another f o r turkeys. A t h i r d Agency for b r o i l e r chicken i s presently under consideration. Development of Marketing L e g i s l a t i o n i n B r i t i s h Columbia The f i r s t Canadian l e g i s l a t i o n aimed towards i n s t i t u t i n g compulsory marketing f o r a g r i c u l t u r a l products or i g i n a t e d i n B r i t i s h Columbia with the passage of the B.C. Produce Marketing Act of 1927. It was the r e s u l t of growing d i s s a t i s f a c t i o n on the part of tree f r u i t producers with low prices and i n e f f e c t i v e voluntary cooperative plans e x i s t i n g at the time. Under the Act, authority was granted to a committee to c o n t r o l the time and place of marketing of the regulated product (tree f r u i t ) , to e s t a b l i s h q u a l i t y and quantity regulations, to e s t a b l i s h 24 minimum p r i c e s , and c o l l e c t l e v i e s from the producers to cover the cost of operations. In 1931, the f e d e r a l government declared t h i s Act to be u l t r a v i r e s on two grounds: (a) that i t was an encroachment upon f e d e r a l j u r i s d i c t i o n , since i t extended c o n t r o l to i n t e r p r o v i n c i a l product move- ment, and (b) that i t represented the imposition of an i n d i r e c t tax, 9 which was beyond the authority of the p r o v i n c i a l government. In June of 1936, one day a f t e r the Supreme Court of Canada declared the Federal Natural Products Marketing Act (1934) to be u l t r a v i r e s , B r i t i s h Columbia passed the Natural Products Marketing ( B r i t i s h Columbia) Act. This Act, as revised to 1960, has as i t s purpose " . . . to provide f o r the promotion, c o n t r o l , and r e g u l a t i o n i n any or a l l respects of the transportation, packing, storage, and marketing of n a t u r a l products w i t h i n the Province, i n c l u d i n g the p r o h i b i t i o n of such transportation, packing, storage, and marketing i n whole or i n p a r t . " ^ The Lieutenant-Governor i n Council was given the a u t h o r i t y , under t h i s Act, to e s t a b l i s h such schemes as were necessary to e f f e c t the purposes of the l e g i s l a t i o n , and to c o n s t i t u t e marketing boards to administer the respective l o c a l schemes. A scheme may be e s t a b l i s h e d to apply to " . . the whole of the Province or to any area w i t h i n the Province, and may Department of A g r i c u l t u r a l Economics, A Comparative Study of A g r i c u l t u r a l Marketing L e g i s l a t i o n i n Canada, A u s t r a l i a , United Kingdom and the United States, November 1964, Ontario, U n i v e r s i t y of Guelph, P u b l i c a t i o n No. A.E./64-65/11, p. 8. ^ Natural Products Marketing ( B r i t i s h Columbia) Act, RS 1960, c. 263, s. 4. 25 r e l a t e to one or more n a t u r a l products or to any grade or class * »12 thereof." General Regulations Governing Marketing Orders i n B r i t i s h Columbia Among the powers which the Lieutenant-Governor i n Council may vest i n any of the P r o v i n c i a l Boards under the Natural Products Market- 13 ing ( B r i t i s h Columbia) Act are the power to: . . . regulate the time and place at which and to designate the agency through which any regulated product s h a l l be packed, stored, or marketed; to determine the manner of d i s t r i b u t i o n , the quantity and q u a l i t y , grade or class of the regulated product that s h a l l be transported, packed, stored, or marketed . . . and to p r o h i b i t the transportation, packing, storage or marketing of any grade, q u a l i t y , or class of any regulated product; and to determine the charges that may be made for i t s services by any designated agency . . . . . . require any or a l l persons engaged i n the production, packing, transporting, s t o r i n g , or marketing of the regulated product to r e g i s t e r with and obtain l i c e n c e s from the board . . . . . . f i x and c o l l e c t y e a r l y , h a l f - y e a r l y , q u a r t e r l y , or monthly l i c e n c e fees from any or a l l persons producing, packaging, trans- p o r t i n g , s t o r i n g , or marketing the regulated product . . . and to recover such l i c e n c e and other fees by s u i t i n any Court of competent j u r i s d i c t i o n . . . Natural product, as defined by the Natural Products Marketing ( B r i t i s h Columbia) Act, RS 1960, c. 263, s. 2, includes any product of a g r i c u l t u r e , or of the f o r e s t , sea, lake, or r i v e r , and any a r t i c l e of food or drink wholly or p a r t l y manufactured or derived from any such product. 12 Natural Products Marketing ( B r i t i s h Columbia) Act, RS 1960, c. 263, s. 4, ss. 3. Natural Products Marketing ( B r i t i s h Columbia) Act, RS 1960, c. 263, s. 5. 26 . . • cancel any l i c e n c e f o r v i o l a t i o n of any p r o v i s i o n of the Scheme or of any order of the board or of the regulations . . . . . . require f u l l information r e l a t i n g to the production, pack- ing, transporting, s t o r i n g , and marketing of the regulated product . . . . . . f i x the p r i c e or p r i c e s , maximum p r i c e or p r i c e s , minimum p r i c e or p r i c e s , or both maximum and minimum p r i c e s at which the regulated product, or any grade or class thereof, may be bought or s o l d i n the Province . . . and may f i x d i f f e r e n t p r i c e s f o r d i f f e r e n t parts of the Province . . . . . . authorize any marketing agency appointed under the Scheme to conduct a pool or pools f o r the d i s t r i b u t i o n of a l l proceeds received from the sale of the regulated product . . . ... . seize and dispose of any of the regulated product kept, transported, packed, stored, or marketed i n v i o l a t i o n of any order of the board . . . . . . make such orders, r u l e s , and regulations as are deemed by the board necessary or advisable to promote, c o n t r o l and regulate e f f e c t i v e l y the transportation, packing, storage, or marketing of the regulated product . . . P r o v i n c i a l commodity boards are authorized, under the A g r i c u l - 14 t u r a l Products Marketing Act, to cooperate with the Federal Board, and may, with the approval of the Lieutenant-Governor i n Council, perform any function or duty and exercise any power imposed or conferred upon i t by the Federal Act with reference to the marketing of a nat u r a l product. The Federal Board, may, with the approval of the Lieutenant-Governor i n Council, exercise any of i t s powers p r o v i n c i a l l y with reference to a natu r a l product."'"* 14 Federal Board i n th i s context r e f e r s to the Governor i n Council. 1 5 Natural Products Marketing ( B r i t i s h Columbia) Act, RS 1960, c. 263, s. 6-7. 27 As of July 1974, there are ten marketing boards i n operation under the Natural Products Marketing ( B r i t i s h Columbia) Act: B.C. B r o i l e r Marketing Board B.C. Coast Vegetable Marketing Board B.C. Cranberries Marketing Board B.C. Egg Marketing Board B.C. Grapes Marketing Board B.C. I n t e r i o r Vegetable Marketing Board B.C. Mushroom Marketing Board B.C. Oyster Marketing Board B.C. Tree F r u i t s Marketing Board B.C. Turkey Marketing Board The B.C. B r o i l e r Marketing B o a r d — O r g a n i z a t i o n a l Structure The B r i t i s h Columbia B r o i l e r Marketing Scheme, a scheme to " . . . promote, c o n t r o l , and regulate the transportation, packing, 16 storage, and marketing of B r i t i s h Columbia b r o i l e r chickens . . . 11 was passed by an Order i n Council on December 12, 1961 pursuant to the provisions established i n the Natural Products Marketing ( B r i t i s h Columbia) Act. The Scheme provides f o r the cre a t i o n of a B.C. B r o i l e r Marketing Board, comprised of three grower-elected representatives of the b r o i l e r industry, who are given the authority to administer the Scheme. The members of the Board are elected f o r a term of three years, and are given such remuneration as i s established by the growers at the B.C. B r o i l e r Growers Asso c i a t i o n annual meetings. A l l f i n a n c i a l support for the Board i s received through assess- ments, l e v i e d on the producers of the regulated product. Currently, the B r i t i s h Columbia B r o i l e r Marketing Scheme, B.C. Reg. 188/61. 28 assessment i s three-quarters of one cent f o r each b i r d marketed ( i n c l u d - ing fowl), and one-third of a cent per dozen on b r o i l e r breeder hatching eggs. These assessments are normally deducted from the grower returns by the processors and hatcheries r e s p e c t i v e l y , and are forwarded d i r e c t l y to the Board. In a d d i t i o n to the authorization given to conduct day to day a c t i v i t i e s , the Scheme empowers the Board to:"^ . . . regulate the time and place at which, and to designate the agency through which, any regulated product s h a l l be packed, stored, or marketed; to determine the manner of d i s t r i b u t i o n , the quantity and q u a l i t y , grade, or c l a s s of the regulated pro- duct, . . . to p r o h i b i t the transportation, packing, storage, or marketing of any grade, q u a l i t y , or cl a s s of any regulated product; and to determine the charges that may be made f o r i t s services by any designated agency . ... . . . exempt from any determination or order any person or c l a s s of person engaged i n the transportation, production, packing, s t o r i n g , or marketing of the regulated product or any c l a s s , v a r i e t y , or grade thereof . . . . . . require any or a l l persons engaged i n the production, transportation, packing, s t o r i n g , or marketing of the regulated product to r e g i s t e r with and obtain l i c e n c e s from the Board . . . . . . e s t a b l i s h , i s s u e , permit t r a n s f e r , revoke, or reduce quotas to any person as the Board, i n i t s d i s c r e t i o n may determine from time to time, whether or not the same are i n use, and to e s t a b l i s h the terms and conditions or issue, revocation, reduction, and transfer of quotas, such quotas to remain at a l l times exclusive property of the Board, which s h a l l not attach any monetary value thereto; . . . . . . issue permits upon such terms and conditions as to issuance and revocation as i s deemed necessary . . . B r i t i s h Columbia B r o i l e r Marketing Scheme, B.C. Reg. 188/61, s. 4.01 (a-o). 29 . . . f i x and c o l l e c t y e a r l y , h a l f - y e a r l y , q u a r t e r l y , or monthly li c e n c e fees . . . . . . cancel any l i c e n c e or permit f o r v i o l a t i o n of any p r o v i s i o n of the Scheme or of any order of the Board or of the regulations . . . . . require f u l l information r e l a t i n g to the production, transpor- t a t i o n , packing, s t o r i n g , and marketing of the regulated product from a l l persons engaged therein; . . . and to inspect the books and premises of such persons . . . . . . f i x the p r i c e or p r i c e s , maximum p r i c e or p r i c e s , minimum p r i c e or p r i c e s , or both maximum and minimum prices at which the regulated product, or any grade or clas s thereof, may be bought or sold i n the province, or that s h a l l be paid f o r the regulated product by a designated agency, and may f i x ' d i f f e r e n t p r i c e s f o r d i f f e r e n t parts of the province . . . . . . e s t a b l i s h and conduct, or to authorize any marketing agency approved by the Board under the Scheme to conduct a pool or pools fo r the d i s t r i b u t i o n of proceeds received from the sale of the regulated product a f t e r deducting a l l necessary and proper d i s - bursements, expenses and charges, i n such manner that each person receives a share of the net proceeds i n r e l a t i o n to the amount, v a r i e t y , s i z e , grade, and clas s of the regulated product d e l i v e r e d by him . . . . . . require the person i n charge of any v e h i c l e i n which the regulated product could be transported to permit any member or employee of the Board to search the v e h i c l e . . . . . . seiz e and dispose of any of the regulated product kept, transported, packed, stored, or marketed i n v i o l a t i o n of any order of the Board . . . . . . make such orders, r u l e s , and regulations as are deemed by the Board necessary or advisable . . . . . . refuse to issue any l i c e n c e to any person who previously held a l i c e n c e which was cancelled by the Board, and to any person who associated with any person who previously held a l i c e n c e which was cancelled by the Board, and to any person who has, within s i x months of the date of his a p p l i c a t i o n f o r a l i c e n c e , committed any act which would be an act of bankruptcy under the Bankruptcy Act of Canada, and to any person who f a i l s to s a t i s f y the Board that he has the transportation, packing, s t o r i n g , and marketing f a c i l i t i e s deemed by the Board as necessary to properly protect the i n t e r e s t s of the growers . . . 30 . . . . promote the b r o i l e r industry by a d v e r t i s i n g . . . and by compiling, p u b l i s h i n g , d i s t r i b u t i n g , and fu r n i s h i n g information with respect thereto . . . 18 . . . delegate i t s powers to such an extent and i n such manner as the Board may from time to time deem necessary or advisable . . . A l l producers of the regulated product are under the j u r i s d i c t i o n of the B.C. B r o i l e r Marketing Board and a l l handlers of the r e g i s t e r e d product are licenced by the Board. The d e f i n i t i o n of a regulated product provided i n the Scheme, as amended on A p r i l 25, 1973, includes " . . . any class of chicken under s i x months of age not r a i s e d or used for egg production, and also means b r o i l e r breeders and b r o i l e r hatch- ing eggs and any a r t i c l e of food or drink wholly or p a r t l y manufactured or derived from the regulated product." The Scheme was revised i n 1973 to permit the i n c l u s i o n of forty-one b r o i l e r breeder hatching egg pro- duction units under the j u r i s d i c t i o n of the Board. (The b r o i l e r breeder hatching egg producers were formerly under the j u r i s d i c t i o n of the B.C. Egg Marketing Board). B r o i l e r s under B.C. B r o i l e r Marketing Board regulations are divided i n t o four categories, Rock Cornish Game Hens ( f i v e weeks of age, approximately 2.2 pounds liveweight), j u n i o r b r o i l e r s (seven to eight weeks of age, approximately 3.4 pounds liveweight), b r o i l e r s (eight weeks of age, approximately 3.9 pounds liv e w e i g h t ) , and roasters (twelve weeks of age, approximately 7.5 pounds liveweight). Excluding powers concerning l i c e n c i n g and quotas. 31 The.B.C. B r o i l e r Marketing Board does not have the authority to d i r e c t l y c o n t r o l production. Presumably, t h i s i s because the B r i t i s h North America Act does not delegate authority to any corpora- 19 t i o n or board to c o n t r o l production d i r e c t l y . This does not, how- ever, preclude i n d i r e c t c o n t r o l of production through c o n t r o l of the amount of any product which any one grower may market i n a given production period. By e f f e c t i v e l y c o n t r o l l i n g the quantity of product marketed, the Board accomplishes v i r t u a l production c o n t r o l . The B.C. B r o i l e r Marketing Board regulates production through the use of quotas and permits. These represent r i g h t s to market a given quantity of birds per cycle and are a l l o t t e d to i n d i v i d u a l growers at the d i s c r e t i o n of the Board. The primary d i f f e r e n c e between a quota holder and a permit holder i s that a grower holding a permit i s not considered to be a r e g i s t e r e d grower by the Board, and therefore cannot vote on Board ac t i o n s , be elec t e d to the Board, or hold membership i n the B.C. B r o i l e r Growers Ass o c i a t i o n . The Board has t r a d i t i o n a l l y used permits as a means to introducing new growers. T h e o r e t i c a l l y , the quota (or r i g h t to produce) issued by the Board has no monetary value attached to i t . The Board has the au t h o r i z a t i o n , under t h e i r Scheme, to set the p r i c e f o r hatching eggs and to e s t a b l i s h the p r i c e per pound liveweight paid to the grower for f i n i s h e d b r o i l e r s . I n d i v i d u a l grower returns are H.V. Walker and G. Hiscocks, A Preliminary Draft of: A Report on A g r i c u l t u r a l Marketing Boards i n Canada, 1969, Ottawa, Canada Depart- ment of A g r i c u l t u r e l i b r a r y , p. 76. 32 based on the amount of production per cl a s s of product m u l t i p l i e d by the liveweight p r i c e f or that product. In 1961, when the Board commenced a c t i v i t i e s , 261 producers became subject to r e g u l a t i o n , t h e i r volume of production being 8,082,000 bi r d s . In 1973, comparable figures were 139 b r o i l e r producers with 18,835,000 b i r d s . The Board has the a u t h o r i t y to regulate the importation of any b r o i l e r product from outside of the province coming under t h e i r j u r i s d i c - t i o n . Anyone wishing to bring any of the regulated product to B r i t i s h Columbia must f i r s t receive w r i t t e n permission from the Board, which re t a i n s the r i g h t to s p e c i f y the quantity of the product sold as w e l l as any conditions r e l a t i o n g to the sale of that product. H i s t o r i c a l Development of Marketing L e g i s l a t i o n i n the United States Due to unfavourable economic conditions r e s u l t i n g from the depression years (1930-35) and the i n e f f e c t i v e n e s s of voluntary organ- i z a t i o n to a r r e s t the f a l l i n g p r i c e s of farm products, the i n i t i a l steps toward an organized marketing approach f o r a g r i c u l t u r a l commodities were undertaken i n 1933, with the passage of the A g r i c u l t u r a l Adjustment Act. This act represented the f i r s t attempt to provide a statutory basis for "compulsory competition" i n a g r i c u l t u r a l marketing through the use of l i c e n c e s . Within two years, s i x t y - e i g h t plans were promul- gated i n v o l v i n g 7700 licenc e s and d i r e c t l y a f f e c t i n g two m i l l i o n 20 growers. This f i r s t attempt was, however, short l i v e d . In 1937, the Act was declared u n c o n s t i t u t i o n a l on the basis of i t s processing tax p r o v i s i o n . I t was f e l t that i n some instances the tax p r o v i s i o n merely provided f o r the t r a n s f e r of money from the processor to the producer, with r e s u l t i n g losses i n a g r i c u l t u r a l acreage. The A g r i c u l t u r a l Adjustment Act was replaced by the A g r i c u l t u r a l Marketing Agreement Act of 1937. One of the conceptual dif f e r e n c e s i n the two pieces of l e g i s l a t i o n was that the l a t t e r was designed to place marketing controls as a permanent adjunct of a g r i c u l t u r a l marketing, and that "shortages" should be planned f o r as w e l l as "surpluses." In the former act, these powers were advocated only as temporary measures to meet the emergency s i t u a t i o n s created by the depression years. The 21 objectives set f o r t h i n the 1937 act were to: (1) . . . e s t a b l i s h and maintain such orderly marketing conditions for a g r i c u l t u r a l commodities i n i n t e r s t a t e commerce as w i l l e s t a b l i s h , as the p r i c e s to farmers p a r i t y p r i c e s . . . (2) . . . protect the i n t e r e s t of the consumer by (a) approaching the l e v e l . . . (parity) . . . p r i c e s . . . by gradual c o r r e c t i o n of the current l e v e l . . . , and (b) authorizing no a c t i o n . . . which has f o r i t s purpose the maintenance of p r i c e s to farmers above the p a r i t y l e v e l . . . , (3) . . . e s t a b l i s h and maintain such minimum standards of q u a l i t y and maturity and such grading and i n s p e c t i o n require- ments f o r a g r i c u l t u r a l commodities . . . as w i l l effectuate 20 A Comparative Study of A g r i c u l t u r a l Marketing L e g i s l a t i o n i n Canada, A u s t r a l i a , United Kingdom and the United States, p. 16. 21 R. M. A. Loyns, "A Comparison of L e g i s l a t i v e Aspects of A g r i c u l t u r a l Market Regulation i n Canada and the U.S.," Canadian Journal of A g r i c u l t u r e Economics, Vol. 19, No. 1 (July 1971), p. 40. 34 such orderly marketing of such a g r i c u l t u r a l commodities as w i l l be i n the p u b l i c i n t e r e s t . . . (4) . . . e s t a b l i s h and maintain such orderly marketing condi- tions . . . as w i l l provide, i n the i n t e r e s t of producers and consumers, an orderly flow of the supply thereof to market throughout i t s normal marketing season to avoid un- reasonable f l u c t u a t i o n s i n supplies and p r i c e s . . . (5) . . . continue f o r the remainder of any marketing season or marketing year, such r e g u l a t i o n pursuant to any order as w i l l tend to avoid a d i s r u p t i o n of the orderly marketing of any commodity and be i n the p u b l i c i n t e r e s t . . . In 1947, the Act was amended to empower marketing c o n t r o l boards to e s t a b l i s h minimum grade and q u a l i t y standards, together with mandatory ins p e c t i o n , regardless of whether seasonal average p r i c e exceeded p a r i t y l e v e l s . This was a s i g n i f i c a n t amendment, since the basic act required suspension of a l l c o n t r o l measures designed to a i d p r i c e s when the seasonal average had reached or was l i k e l y to reach p a r i t y . In 1954, the Act was amended to include r e g u l a t i o n of imports with the view towards maintaining them on a comparable ba s i s with the regulated domestic product. P r o v i s i o n was also included, at t h i s time, f o r the r e g u l a t i o n of containers used f o r packaging and market- ing the regulated product, and f o r market research and product develop- , 2 2 ment. The A g r i c u l t u r a l Marketing Agreement Act s p e c i f i e s those products which may be regulated on a f e d e r a l l e v e l and those which may A Comparative Study of A g r i c u l t u r a l Marketing L e g i s l a t i o n i n Canada, A u s t r a l i a , United Kingdom and the United States, p. 18. 35 be regulated include milk, s p e c i f i c s o f t f r u i t s , tree nuts, peanuts, tobacco, vegetables, hops, honey bees, naval stores, o l i v e s , grape- f r u i t s , c h e r r i e s , cranberries and some apples f o r canning and freezing. A l l f r u i t s and vegetables f o r canning and f r e e z i n g not mentioned and apples produced i n sev e r a l states are i n e l i g i b l e . Other commodities which are excluded are honey, cotton, grains, sugar beets and sugar 23 cane, poultry and eggs (except turkey and turkey hatching eggs). Products not e l i g i b l e under f e d e r a l j u r i s d i c t i o n are normally c o n t r o l l e d by state marketing agreements i f t h e i r l e v e l of production i s s u f f i c i e n t to warrant t h i s . Several states have no l e g i s l a t i o n to cover t h i s type of market l e g i s l a t i o n , s e v e r a l have l e g i s l a t i o n s p e c i f i c to milk or some other commodity, and a few cover a l l or most farm products. In the United States, enabling a g r i c u l t u r a l l e g i s l a t i o n on the fe d e r a l and state l e v e l f a l l s i n t o two b a s i c categories: marketing orders and marketing agreements. A marketing order i s a compulsory agreement between the Secretary (or State Director) of A g r i c u l t u r e and producers or processors which regulates the marketing of a commodity (once the order has been approved by the r e q u i s i t e m a j o r i t y ) . A marketing agree- ment i s a voluntary arrangement between the Secretary (or State Director) of A g r i c u l t u r e and producers and handlers of a commodity, and i s binding . 24 only on those who sign i t . 23 Loyns, "A Comparison of L e g i s l a t i v e Aspects of A g r i c u l t u r a l Market Regulation i n Canada and the U.S.," p. 39. ^ Ibid. , p. 37. 36 The majority of state orders and agreements are f o r f r u i t s and vegetables. Several commodities are regulated by f e d e r a l and state orders simultaneously i n order to e f f e c t fresh and processed forms of the product or to engage i n other regulatory a c t i v i t i e s which 25 are unique to one or other of the enabling s t a t u t e s . C a l i f o r n i a was the f i r s t s t a t e to pioneer the use of marketing orders as a form of s e l f - h e l p f o r a g r i c u l t u r e , with the passage of the Prorate Act of 1933 and subsequent marketing and enabling l e g i s l a - t i o n i n 1933, 1935 and 1937. Since then, more than 35 C a l i f o r n i a 26 commodity groups have employed state marketing orders. Many other states have used C a l i f o r n i a ' s l e g i s l a t i o n as a base upon which to pattern t h e i r own enabling l e g i s l a t i o n . Development of Marketing L e g i s l a t i o n i n Washington State The f i r s t e f f o r t towards compulsory marketing of a g r i c u l t u r a l commodities i n Washington was the creation of the Washington Apple Ad v e r t i s i n g Commission i n 1937. This Commission was based on a market- ing order which was requested by industry leaders and was imposed by the l e g i s l a t u r e upon those growers who produced apples f o r sa l e on the fresh market. I t l e v i e d an assessment on such apples to be paid by the grower, provided f o r the c o l l e c t i o n and disbursement of the funds, 25 Loyns, "A Comparison of L e g i s l a t i v e Aspects of A g r i c u l t u r a l Market Regulation i n Canada and the U.S.," p. 39. 26 j _ , . Washing Orders, 1971, p. 2 ton State Department of A g r i c u l t u r e , State Marketing 37 and created a commission of growers and handlers to administer the order. Funds c o l l e c t e d were used to advertise and promote the regulated product. S i m i l a r l e g i s l a t i o n was requested of, and enacted by, the l e g i s l a t u r e to create the Washington Dairy Products Commission i n 1937 27 and the Washington Soft F r u i t Coinmission i n 1947. In the early 1950's several farm groups appealed to the Washing- ton l e g i s l a t u r e f or enactment of l e g i s l a t i o n governing a g r i c u l t u r a l production and marketing s i m i l a r to that i n e f f e c t i n C a l i f o r n i a . As a r e s u l t , a general A g r i c u l t u r a l Enabling Act was passed i n 1955. I t authorized the use of marketing orders and marketing agreements to regulate, commodity markets under the administration of commodity commissions. The members of the commodity commissions were to be elected by growers and/or handlers as s p e c i f i e d by the order or agree- ment. One feature of C a l i f o r n i a l e g i s l a t i o n , the authorization to co n t r o l the quantity of a product moving to market and the d i s p o s i t i o n of surpluses, was not and has not since been included i n any a g r i c u l - t u r a l l e g i s l a t i o n i n Washington due to opposition from the processors 28 and d i s t r i b u t o r s of the product. Under the A g r i c u l t u r a l Enabling Act, q u a l i f y i n g groups may have orders promulgated by the D i r e c t o r of A g r i c u l t u r e , and assessments may be disbursed for a d v e r t i s i n g , research, improvement of grades and standards, and for the i n v e s t i g a t i o n of u n f a i r trade p r a c t i c e s . 27 Washington State Department of A g r i c u l t u r e , State Marketing Orders, 1971, p. 2. Ibxd. 38 The f i r s t commodity group to use t h i s l e g i s l a t i o n was the bulb growers ( i n 1956). Orders were established f o r potato growers and seed potato growers i n 1956, and for wheat and fryers i n 1957. Following complaints by d i s s i d e n t groups of wheat producers i n 1957, the A g r i c u l t u r a l Enabling Act was challenged i n court. I t was declared u n c o n s t i t u t i o n a l on the grounds of i t s administrative pro- v i s i o n s , but t h i s d e c i s i o n was subsequently reversed by the Washington State Supreme Court. With the expressed approval of the 1955 Act by the Supreme Court the extension of l e g i s l a t i v e a u thority and the c o l l e c t i o n of assessments were considered l e g a l and w i t h i n the in t e n t 29 of the L e g i s l a t u r e . As a r e s u l t of the controversy surrounding the o r i g i n a l act, a second Washington A g r i c u l t u r a l Enabling Act was drafted and passed i n 1961. The major d i f f e r e n c e i n the two pieces of l e g i s - l a t i o n i s that i n the l a t t e r Act, i t s administration i s vested with the D i r e c t o r of A g r i c u l t u r e or his designate. Advisory and assistance functions are assigned to i n d i v i d u a l commodity boards, elected by the respective growers and/or handlers of the produce, and the board so established may be designated as the administrator. Power i s also granted to groups established under the 1961 Act to use a sign-up procedure i n l i e u of a referendum to obtain r e q u i s i t e grower approval. The f i r s t group to use the new act was the hop growers i n 1964, followed by the dry pea and l e n t i l growers i n 1965, and the mint growers i n 1966, Personal communication with A l l a n Johnson, Manager, Washington Fryer Commission. 39 and then the blueberry growers i n 1969. Commissions for beef and tree f r u i t s were established under separate l e g i s l a t i o n i n 1969. The a g r i c u l t u r a l community i n Washington State now has a choice of two enabling acts f o r use i n market organization and r e g u l a t i o n : the A g r i c u l t u r a l Enabling Act of 1955 and the A g r i c u l t u r a l Enabling Act of 1961. While both acts permit the use of marketing agreements as w e l l as marketing orders, there have been no marketing agreements 30 established i n Washington. Both acts provide f o r the termination of any order which f a i l s to accomplish the purposes for which i t was i n - tended. The 1955 Act requires the same procedure f o r termination as for issuance (a referendum of a l l growers, a favourable majority being established i f f i f t y - o n e per cent of the growers vote, and of those voting, s i x t y - f i v e per cent or more with f i f t y - o n e per cent of the production volume vote i n favour). The 1961 Act requires a referendum of f i f t y - o n e per cent of the growers with f i f t y - o n e per cent of the production volume f o r termination. General Regulations Governing Washington State Marketing Orders A l l marketing orders drafted under the Washington State A g r i - c u l t u r a l Enabling Acts of 1955 and 1961 are operated and c o n t r o l l e d by commissions or commodity boards elected by the a f f e c t e d growers. The State D i r e c t o r of A g r i c u l t u r e i s an e x - o f f i c i o member of a l l State Marketing Orders, p. 4. 40 commissions. Each commission i s given the authority to e s t a b l i s h an o f f i c e , employ necessary personnel, i n c l u d i n g attorneys, to acquire property, to borrow money, to maintain i t s own bank account, to sue and be sued, and to adopt rules and regulations that w i l l tend to e f f e c t the purposes of the marketing order. Complete records of a l l a c t i v i t i e s must be maintained, and these are subject to audit by the State Auditor. Nomination and e l e c t i o n of commission members i s super- vised by the Dir e c t o r of A g r i c u l t u r e . Each commission i s required to hold meetings at l e a s t four times per year, and these are open to the pub l i c . Funds may not be spent f o r any a c t i v i t y not s p e c i f i c a l l y authorized by the marketing order i n e f f e c t . A c t i v i t i e s authorized under the 1955 Act are a d v e r t i s i n g and promotion, research, improvement of grades and standards, and the prevention of u n f a i r trade p r a c t i c e s . The 1961 Act authorizes the same a c t i v i t i e s and i n addition authorizes the d i s t r i b u t i o n of marketing information and c e r t a i n services to producers such as the v e r i f i c a t i o n of grades, standards, weights, t e s t s , and sampling f o r q u a l i t y and quantity of the af f e c t e d commodity. This Act also permits the i n c l u s i o n of any other p r o v i s i o n that i s i n c i d e n t a l to and not in c o n s i s t e n t with the Act, i f the D i r e c t o r finds that such i s necessary to e f f e c t the purposes of the Act. No marketing order can be issued f o r the purpose of c o n t r o l l i n g the production of a commodity, or for f i x i n g p r i c e s at any l e v e l of trade. Neither can any order be issued that disregards the i n t e r e s t s of consumers. A l l costs of formulation, implementation, and administration / 41 of marketing orders are paid by af f e c t e d producers through a levy on the proceeds or sales of t h e i r commodities. The maximum amount of assessment i s l i m i t e d by the Act. Further, the amount that i s to be assessed must be determined and agreed to by the producers before the marketing order i s issued. Any increase or decrease i n the rate of assessment requires an amendment to the order that again must be approved by the growers. Assessments are normally c o l l e c t e d by the f i r s t handler of the product, and deducted from the returns paid to ,u 31 the grower. The Washington Fryer Commission—Organizational Structure A Marketing Order f o r Washington Fryers, B r o i l e r s and Roasters was established on A p r i l 15, 1957 under the authority of the Washington State A g r i c u l t u r a l Enabling Act of 1955. I t provided f o r the creation of the Washington Fryer Commission to administer the order. The Commission i s comprised of eight voting members; s i x grower-elected commissioners (who are also producers) representing s i x geographical producing d i s t r i c t s within the s t a t e , and two commissioners-at-large who are appointed by the elected producer members. The commission members are elected f o r a term of three years. The Washington State D i r e c t o r of A g r i c u l t u r e i s an e x - o f f i c i o members of the commission. Commission members receive no sal a r y or other compensation from the commission other than a s p e c i f i e d per diem amount (not to exceed twenty State Marketing Orders, p. 8. 42 d o l l a r s ) f o r each day spent i n actual attendance or t r a v e l l i n g to and from meetings of the commission or on s p e c i a l assignments f o r the commission. Their subsistance and t r a v e l l i n g expenses are paid at 32 the rate allowed by law to a l l state employees. Commission meetings are required to be held at l e a s t four times per year on a quarterly b a s i s , and must be comprised of at l e a s t f i v e voting members for approval of any action to be taken by the Commission. A manager i s employed to supervise the day to day a c t i v i t i e s of the Commission. A l l f i n a n c i a l support i s received through assessments l e v i e d 33 on the producers of the regulated product. Currently, an assess- ment of .17 of a cent per pound liveweight i s l e v i e d on the producer for every pound of f r y e r s s o l d , processed or deli v e r e d f o r sale or processing by him, and .22 of a cent per pound f or dressed or cut-up fr y e r s s o l d , processed or de l i v e r e d f o r sale or processing by the producer thereof. No assessment i s l e v i e d f o r sales on a producer's premises by " . . . a producer d i r e c t to a consumer of t h i r t y . . . pounds or less of fr y e r s from a producer's own production; . . . fry e r s of a producer's own production used by him for personal consump- t i o n ; or . . . f r y e r s donated or shipped f o r r e l i e f or c h a r i t a b l e State of Washington Department of A g r i c u l t u r e , Marketing Order f o r Washington Fryers, B r o i l e r s and Roasters, D i r e c t o r ' s Findings and F i n a l Decision (hereafter c i t e d as Marketing Order for Washington Fryers B r o i l e r s and Roasters), March 4, 1957, Art I I , s. H(6). 33 The term "regulated product" as s p e c i f i e d by the Order, includes any and a l l breeds or v a r i e t i e s of chickens under the age of s i x months marketed for human consumption as f r y e r s , b r o i l e r s or f r y e r - r o a s t e r s . 43 34 purposes." No assessment l e v i e d or c o l l e c t e d by the Order may exceed three per cent of the t o t a l market value of a l l such f r y e r s s o l d , produced or d e l i v e r e d f o r sale or processing by a l l producers of f r y e r s for the f i s c a l year to which the assessment a p p l i e s . The a c t i v i t i e s of the Commission are r e s t r i c t e d to four basic areas: a d v e r t i s i n g and sales promotion, research, the improvement of grades and standards for f r y e r s by d e f i n i n g , e s t a b l i s h i n g and providing l a b e l l i n g requirements, and the i n v e s t i g a t i o n and prevention of u n f a i r trade p r a c t i c e s , to include c o r r e c t i o n , where p o s s i b l e , of trade p r a c t i c e s which hinder the marketing of Washington produced f r y e r s . The provisions covering standards, grades, l a b e l s and trade p r a c t i c e s apply with respect to f r y e r s marketed or s o l d w i t h i n Washington State, regard- 35 l e s s of where produced. In 1957, when the Commission commenced a c t i v i t i e s , 640 producers became subject to r e g u l a t i o n , t h e i r volume of production being 11,671,000 b i r d s . In 1973, comparable figures were 126 producers with 16,839,195 b i r d s . Production has f l u c t u a t e d i n the intervening years with a high 36 of 21,681,412 b i r d s produced and marketed i n 1966. Marketing Order for Washington Fryers, B r o i l e r s and Roasters, Art. I l l , s. A(3). 3 5 I b i d . , Art. I l l , s. E. 36 Washington Fryer Commission, Annual Reports, 1957-73. 44 Summary and Comparison Enabling L e g i s l a t i o n One of the areas i n which the enabling a g r i c u l t u r a l l e g i s l a t i o n d i f f e r s i s the delegation of state and p r o v i n c i a l authority as compared with f e d e r a l authority. In Canada, a l l producer boards are i n i t i a t e d and operate under powers vested i n them through enabling p r o v i n c i a l l e g i s l a t i o n . The powers granted to them by p r o v i n c i a l l e g i s l a t i o n l i m i t t h e i r conduct to a c t i v i t i e s which a f f e c t only i n t r a p r o v i n c i a l trade. For those products moving i n i n t e r p r o v i n c i a l or export trade, authority i s delegated under f e d e r a l l e g i s l a t i o n ( A g r i c u l t u r a l Products Marketing Act 1949, as amended). In the United States, marketing orders and agree- ments may be i n s t i t u t e d under e i t h e r f e d e r a l or state j u r i s d i c t i o n . The s p e c i f i c a t i o n of commodity coverage also d i f f e r s between Canadian and American enabling l e g i s l a t i o n . Commodity boards i n Canada may be established to regulate the movement of any a g r i c u l t u r a l or n a t u r a l product produced, as w e l l as any product derived from them. The United States, on the other hand, has enacted l e g i s l a t i o n which designates s p e c i f i c a l l y those commodities which may be regulated and those which are exempt from regulation. R e s p o n s i b i l i t i e s to other sectors of the economy are more c l e a r l y defined i n the American enabling l e g i s l a t i o n . This l e g i s l a t i o n makes s p e c i f i c reference to " p u b l i c i n t e r e s t , " includes provisions which are aimed at protecting the i n t e r e s t s of the consumer, and expressly forbids 45 any action the purpose of which i s to maintain p r i c e s to farmers that are above p a r i t y l e v e l s . With the exception of Quebec, no reference i s found i n any of the e x i s t i n g Canadian l e g i s l a t i o n (dealing with market regulation) which imposes l i m i t s on the a u t h o r i t i e s that may be exercised by the regulatory agencies, or which s p e c i f i e s the respon- 37 s i b i l i t i e s to other p a r t i e s . The controls a v a i l a b l e to commodity boards i n the United States and Canada are s u b s t a n t i a l l y d i f f e r e n t . Under f e d e r a l l e g i s l a t i o n i n the United States, no r e s t r i c t i o n s may be imposed on the production capacity of any producer, with the exception of hop producers, a s p e c i a l 38 case f o r which quotas are permitted. Canada, the l e g i s l a t i v e provisions f o r quota r e g u l a t i o n and p r i c e s e t t i n g provide producers with extensive power over markets. The a b i l i t y of regulatory agencies to e s t a b l i s h minimum p r i c e s or negotiate prices on behalf of the producers i n Canadian l e g i s l a t i o n has no counter- part i n e i t h e r f e d e r a l or state marketing orders i n the United States. The strongest l e g i s l a t i o n regarding p r i c e s found i n United States l e g i s l a t i o n i s the requirement of p r i c e posting, a measure which i s intended to improve p r i c e information and to ensure equitable p r i c i n g 39 among producers rather than e s t a b l i s h p r i c e l e v e l s by c o l l e c t i v e action. 37 Loyns, "A Comparison of L e g i s l a t i v e Aspects of A g r i c u l t u r a l Market Regulation i n Canada and the U.S.," p. 40. ^ I b i d . , p. 44. 39 Ibid. 46 In the United States, i t i s normally the processors or handlers of the product who are regulated under marketing orders and agreements, while i n Canada, regulatory mechanisms used by the Boards are applied 40 to producers. This tends to lead to a dependence on producer quotas as implements of market re g u l a t i o n i n Canada, rather than the use of tools such as market research and development and product promotion to improve market demand as i s the case i n the United States. Research e f f o r t s i n the United States have been extensive i n the areas of economic and t e c h n i c a l c h a r a c t e r i s t i c s of commodities, i n v e s t i g a t i o n of improved production and marketing e f f i c i e n c i e s , development of'market p o t e n t i a l , and continuing program evaluation. The research i s often embarked upon by the commodity groups themselves, or i n conjunction with Land Grant Colleges. There i s very l i t t l e h i s t o r i c a l evidence to suggest that research or program analysis has been conducted i n Canada, and s t a t i s t i c a l 41 information relevant to market c o n t r o l i s d e f i n i t e l y l a c k i n g . The degree to which i n d i v i d u a l boards are c o n t r o l l e d also d i f f e r s i n Canada and the United States. In the United States, the Secretary and State D i r e c t o r of A g r i c u l t u r e are responsible for the super- v i s i o n , i n v e s t i g a t i o n , and issuance of marketing orders on the f e d e r a l and state l e v e l r e s p e c t i v e l y . A l l orders e s t a b l i s h i n g a commodity program s p e c i f y that an advisory committee or c o n t r o l board—comprised of appointed Loyns, "A Comparison of L e g i s l a t i v e Aspects of A g r i c u l t u r a l Market Regulation i n Canada and the U.S.," p. 44. 4 1 I b i d . 47 producers and/or p r o c e s s o r s — b e appointed to advise the Secretary or State D i r e c t o r of A g r i c u l t u r e on a l l aspects of program operation, and 42 to implement orders as they may be issued. In Canada, a P r o v i n c i a l Marketing Board i s established to oversee the operations of a l l provin- c i a l commodity boards. In most provinces, however, the r o l e of the p r o v i n c i a l board i s l i m i t e d a f t e r a producer board has been established. I t i s the i n d i v i d u a l producer boards themselves who determine regulatory p o l i c i e s , e s t a b l i s h quotas and issue l i c e n c e s . In B r i t i s h Columbia, the P r o v i n c i a l Marketing Board functions mainly as a l i a i s o n between the l o c a l boards and the p r o v i n c i a l govern- ment. In Canada, the focus of c o n t r o l of a g r i c u l t u r a l commodities r e s t s mainly with the provinces. Since the provinces have t r a d i t i o n a l l y delegated t h e i r powers of regulation to the i n d i v i d u a l commodity boards, the i n d i v i d u a l producer groups are f a r more powerful than those i n the United States. Organizational Structure One of the more s t r i k i n g d i f f e r e n c e s i n the structure of the Board and Commission are the powers delegated to each. The Washington Fryer Commission i s empowered with the authority to conduct a d v e r t i s i n g and promotion, product research, the improvement of standards and grades, and the i n v e s t i g a t i o n and prevention of u n f a i r trade p r a c t i c e s . The B.C. B r o i l e r Marketing Board has the authority to regulate t o t a l quantity Loyns, "A Comparison of L e g i s l a t i v e Aspects of A g r i c u l t u r a l Market Regulation i n Canada and the U.S.," p. 45. of product produced, maximum quantity of product produced by any one grower, the p r i c e the grower receives f or the product, and to r e s t r i c t the i n t r o d u c t i o n of any competing product i n t o the B r i t i s h Columbia market. The powers given to the Washington Fryer Commission are developmental i n nature, while those given to the B.C. B r o i l e r Market- ing Board are regulatory i n nature. The Marketing Order for Washington Fryers, B r o i l e r s , and Roasters s p e c i f i e s the minimum number of times the Commission must meet, and that these meetings must be open to the p u b l i c . The B.C. B r o i l e r Marketing Scheme has no p r o v i s i o n f o r the number of times during a year > that meetings must be held. The Order under which the Washington Fryer Commission operates, e x p l i c i t l y precludes any a c t i o n taken by the Commission f o r the purpose of c o n t r o l l i n g the production of the commodity or f i x i n g p r i c e at any l e v e l of trade. I t further states that no order may be issued that disregards consumer i n t e r e s t s . The p r o v i s i o n f o r establishment of p r i c e is, e x p l i c i t l y stated i n the B.C. B r o i l e r Market- ing Scheme, however, no p r o v i s i o n i s included f or consumer i n t e r e s t s . While both the Board and Commission c o l l e c t a levy from the growers to finance t h e i r operations, the Marketing Order for Washington Fryers, B r o i l e r s and Roasters places an absolute l i m i t on the amount which may be assessed. No such p r o v i s i o n i s included i n the B.C. B r o i l e r Marketing Scheme. CHAPTER IV CONDUCT Introduction In the approaches to organized marketing taken by the B.C. Broiler Marketing Board and the Washington Fryer Commission in the broiler industries of British Columbia and Washington, respectively, the second area of comparison i s that of conduct. B.C. Broiler Marketing Board As was previously mentioned, the B.C. Broiler Marketing Board has the authority, under their Scheme, to regulate the amount of product produced (through the use of quotas), to determine the number of growers who may hold quota at any given time, to f i x the total amount of quota which any grower may hold, to establish the price for broiler hatching eggs and liveweight price to producers, and to res t r i c t or otherwise control any regulated product which is offered for import sale on the British Columbia market. While the Scheme also authorizes the Board to conduct promotional a c t i v i t i e s , since most of the functions of the Board centre on regulation, a discussion of their conduct is necessarily dominated by reference to legislation rather than to product promotion and research. The acti v i t i e s of the Board may be divided into three categories: (a) regulation of domestic supply, (b) regulation of imported product, and (c) other a c t i v i t i e s . 49 50 Regulation of Domestic Supply The c o n t r o l of domestic supply through the use of quota has formed a major p o r t i o n of the Board's a c t i v i t i e s . Quota constitutes the r i g h t to produce a s p e c i f i e d amount of the regulated product, and i s a l l o c a t e d by the Board. For b r o i l e r s , quota s p e c i f i e s the number of b i r d s a grower may produce during each production c y c l e , and the length of the production cycle i s determined by the Board. To regulate the volume of production, the Board s t i p u l a t e s the percentage of quota which may be produced i n any given cycle. When the Board began operation i n 1961, quota was granted to e x i s t i n g growers on the basis of the square footage of b u i l d i n g s which had been i n operation f o r s i x months or more. Following the i n i t i a l a l l o c a t i o n , increased production demand was met by incr e a s i n g the e x i s t i n g quota. In 1970, ba s i c market quota became known as primary quota and the concept of secondary quota was introduced. A l l growers holding more than 5000 primary quota were issued 5000 secondary quota, and a l l growers with less than 5000 quota were issued secondary quota equal i n amount to t h e i r primary quota. Secondary quota, unlike primary, could be transferred only through the sale of the farm, and only a f t e r i t had been held f o r three years. In 1971, the B.C. B r o i l e r Marketing Board implemented a plan to permit the entry of new growers. Subject to approval by the Board, a new grower receives a 4000 b i r d roaster permit and a 4000 b i r d Rock Cornish Game Hen permit. A f t e r three years, the grower may apply to the 51 Board to have these permits converted to an 8000 b i r d b r o i l e r quota. In A p r i l of 1973, the B.C. B r o i l e r hatching egg producers were brought under the j u r i s d i c t i o n of the B.C. B r o i l e r Marketing Board. This extended for the Board the d e f i n i t i o n of regulated product to include b r o i l e r hatching eggs and fowl. The Board subsequently estab- l i s h e d production quota f o r the b r o i l e r breeders, i n s t i t u t e d a levy of one-third of a cent per dozen on b r o i l e r breeder hatching eggs and three-quarters of a cent per head on each b r o i l e r breeder marketed (fowl). On January 1, 1974, the Board amalgamated a l l primary quota and a l l secondary quota which had been held at l e a s t three years in t o the category of b r o i l e r quota. At the same time, they issued secondary quota of 5000 bi r d s per cycle to a l l 110 lower mainland growers with l e s s than 40,000 t o t a l quota, and f o r those with t o t a l quota from 40,000 to 44,999, they issued secondary quota to b r i n g them to a l e v e l of 45,000 bi r d s per cyc l e . In January of 1974, t o t a l b r o i l e r quota amounted to 4.1 m i l l i o n b i r d s per eleven week cycle and secondary quota amounted to 550,000 bi r d s per eleven week cycle. While quota i s used by the Board as a t o o l to regulate production volume, i t i s not always s u f f i c i e n t to prevent the accumulation of surplus,"'" and other measures are necessary to further curb production. As of J u l y 1974, approximately 4.6 m i l l i o n pounds of b r o i l e r products Surplus i n t h i s context being defined as the excess of product supplied over that demanded at the Board established p r i c e . 52 are being held i n frozen inventory. While the Board has r e s t r i c t e d a l l secondary quota production, and reduced primary quota to ninety per cent to eliminate t h i s surplus, they have also issued regulations increasing the production cycle upon which quota i s based f o r b r o i l e r s from eleven to twelve weeks and reduced the b r o i l e r breeder production cy c l e from 62 to 56 weeks. Regulation of Imported Product During the years 1969 to 1970, a s e r i e s of i n c i d e n t s which were l a t e r r e f e r r e d to as the "chicken and egg war" d r a s t i c a l l y a f f e c t e d the poultry industry i n Canada. The rate of i n t e r p r o v i n c i a l trade i n chicken and eggs increased dramatically, moving product from areas of low cost of production to those of higher cost of production. The B.C. b r o i l e r market was subject to large q u a n t i t i e s of imported products from eastern Canada, which caused d i s r u p t i o n of B.C.'s p r i c e s . As a r e s u l t of t h i s , steps were taken by the Board to regulate any imported product off e r e d f o r s a l e on the B r i t i s h Columbia market. On August 17, 1970, the Board enacted Import Order No. 1, per- mi t t i n g them to se i z e and destroy any import product o f f e r e d on the B r i t i s h Columbia market which had not received p r i o r w r i t t e n approval from the Board. The i n t e r p r o v i n c i a l movement of b r o i l e r s was a concern shared by many of the provinces. In 1970, the Board endorsed a proposal f o r a National Chicken Marketing Plan, providing f or regulations r e s t r i c t - ing the i n t e r p r o v i n c i a l movement of b r o i l e r products. Since the re g u l a t i o n 53 of i n t e r p r o v i n c i a l trade implies a degree of n a t i o n a l c o n t r o l of b r o i l e r production, the development of the Plan has been characterized by p r o v i n c i a l dissension. E a r l y i n 1972, the f e d e r a l government appointed the National Farm Products Marketing Council, a statutory body appointed to set guidelines f o r producer groups i n e s t a b l i s h i n g n a t i o n a l plans under the Farm Products Marketing Agencies Act. The following i s a b r i e f summary of the p o s i t i o n the Board has taken i n the ensuing negotiations. Based on the quota provisions of the Farm Products Marketing Agencies Act, Quebec was to receive the l a r g e s t p r o v i n c i a l quota. The B.C. B r o i l e r Marketing Board f e l t that t h i s would give Quebec a disproportionate share of the t o t a l Canadian chicken market, and suggested that p r o v i n c i a l quotas be established on the basis of 1972 marketing f i g u r e s . The Plan also c a l l e d f o r the purchase and d i s p o s i t i o n of surplus production on a n a t i o n a l l e v e l . Due to the controversy surrounding quota a l l o c a t i o n and surplus d i s p o s i t i o n , as w e l l as un- s a t i s f a c t o r y d e f i n i t i o n s of future growth, the Board declined to support the Plan i n 1972. Negotiation concerning the National Chicken Marketing Plan continued through 1973, and i n December of 1973 the Canadian B r o i l e r Council forwarded a copy of the proposed National Chicken Marketing Plan to the National Farm Products Council i n Ottawa f o r review, despite the dissension of Quebec and B r i t i s h Columbia. Quebec's dissension was based on Section 24 of the National Farm Products Marketing Agencies Act, 54 req u i r i n g p r o v i n c i a l quota i n the n a t i o n a l plan to be based on the provinces previous f i v e years of production r e l a t i v e to the rest of Canada. The B.C. B r o i l e r Board again objected on the grounds of n a t i o n a l quota a l l o c a t i o n , authorization to purchase and dispose of surplus on a na t i o n a l l e v e l , the p r o v i s i o n f o r i n t e r p r o v i n c i a l movement of regulated product, and the disregard f o r the concept of p r o v i n c i a l s e l f - s u f f i c i e n c y i n b r o i l e r production. E a r l y i n 1974, further hearings were conducted regarding the National Chicken Marketing Plan. The B.C. B r o i l e r Marketing Board presented a b r i e f at Winnipeg representing the i n t e r e s t s of B r i t i s h Columbia producers. On A p r i l 9, the Directors of the Canadian B r o i l e r C ouncil met i n Vancouver and approved a new proposal f o r the National Chicken Marketing Plan. The proposed plan based p r o v i n c i a l quotas on a two per cent increase over 1973 p r o v i n c i a l production, reduced the function of the National Agency to one of coordination of surplus d i s p o s a l programs, and prevented i n t e r p r o v i n c i a l movement of b r o i l e r products without the p r i o r consent of the r e c e i v i n g province or provinces. I t f u r t h e r pro- posed that Canada be divided i n t o three producing regions, the f i r s t region comprised o f . B r i t i s h Columbia, A l b e r t a , Saskatchewan and Manitoba, the second region comprised of Ontario and Quebec, and the t h i r d region comprised of New Brunswick, Nova Sco t i a , Prince Edward Island and New- foundland. Further p r o v i n c i a l market a l l o c a t i o n increases or decreases were to be based on comparative advantages of production and marketing wit h i n each province with s p e c i f i c reference to change i n consumer demand, i n d i v i d u a l e f f o r t s on the part of any province to develop new uses f o r 55 chicken and increase domestic and export markets, the a b i l i t y of any province to meet i t s target production, t o t a l market requirement within each province, transportation costs from areas of supply to areas of demand, and the proportion of p r o v i n c i a l demand which i s met by provin- c i a l production. The B.C. B r o i l e r Marketing Board approved the plan as proposed at the A p r i l 9 meeting, and i t was again forwarded to the National Farm Products Council f o r review. The Plan was subsequently amended by the Council and returned to the provinces f o r r a t i f i c a t i o n . Included i n the amendments were a reduction of the controls placed on i n t e r p r o v i n c i a l trade, a modification of the basis f o r p r o v i n c i a l quota a l l o c a t i o n and surplus d i s p o s i t i o n , and an el i m i n a t i o n of the concept of three producing 2 regions i n Canada. The B.C. B r o i l e r Marketing Board declined to approve the proposed Plan as amended. Other A c t i v i t i e s The B.C. B r o i l e r Marketing Board has placed an emphasis on the concept of the family farm, and has taken se v e r a l steps to ensure the maintenance of family s i z e d farm units i n the industry. This has' been accomplished by plac i n g l i m i t s on i n d i v i d u a l quota holdings and the r e s t r i c - tions of quota t r a n s f e r p o l i c i e s . In 1969, the Board passed a regulation p r o h i b i t i n g any grower from holding more than seven per cent of t o t a l quota allotment. This was decreased to a maximum of three per cent i n Personal communication, Art S t a f f o r d , manager, B.C. B r o i l e r Marketing Board. Amendments of the proposed plan were unavailable. 56 1971, and further reduced to 1.25 per cent, or 50,000 b i r d s per c y c l e , i n 1974. P r i o r to 1972, quota could be transferred between growers, subject to approval of the Board. In 1972, the Board issued a regula- t i o n assigning a l l primary quota to s p e c i f i c farms. As a r e s u l t of t h i s r e g u l a t i o n , quota may be trasnferred only through the sale of the farm, and the transfer i s subject to the approval of the Board. To further ensure the concept of a family farm, and to curb v e r t i c a l i n t e g r a t i o n , the Board has s t i p u l a t e d that quota may not be issued or t r a n s f e r r e d to any grower who has received c a p i t a l f i n ancing from any other part of the b r o i l e r industry or a f f i l i a t e d trades. As a further curb on v e r t i c a l i n t e g r a t i o n , every grower i s required to 3 sign a statement to the e f f e c t that they . . . w i l l not engage, be employed, or own shares i n any hatch- ing, processing or feeding business whether incorporated or unincorporated e i t h e r d i r e c t l y or i n d i r e c t l y or through any r e l a t e d person or corporation; provided that nothing i n t h i s Undertaking and Agreement s h a l l prevent the undersigned from acquiring and holding shares i n P a c i f i c Poultry Producers Cooperative A s s o c i a t i o n ^ or f o r any successor thereto, which successor i s approved by the B.C. B r o i l e r Marketing Board. J Undertaking Order, B.C. B r o i l e r Marketing Board. 4 . P a c i f i c Poultry Producers Cooperative A s s o c i a t i o n i s an a s s o c i a t i o n formed by 125 b r o i l e r and turkey producers i n B r i t i s h Columbia. In December of 1973, they formed a company known as Pan- Ready Poultry Ltd., acquired Wm. Scott & Co., a processing plant, and Centennial Hatchery. The government owns f o r t y per cent i n t e r e s t i n Pan-Ready. The President of Pan-Ready and P a c i f i c Poultry Coopera- t i v e A s s o c i a t i o n i s also Chairman of the B.C. B r o i l e r Marketing Board. 57 While much of the Board's a c t i v i t y has been devoted to admin- i s t e r i n g the powers granted to them under t h e i r Scheme, ad v e r t i s i n g and promotional functions have been undertaken as w e l l . These include e x h i b i t i o n s at the B.C. Federation of A g r i c u l t u r e ' s "Acres of Food" display at the P a c i f i c National E x h i b i t i o n , newspaper, radio and magazine advertisements, the p u b l i c a t i o n of a "Home Grown B.C. Quality" cookbook containing recipes for chicken, and establishment of May as "chicken month" by the p r o v i n c i a l government. The area of research has also received some att e n t i o n . In 1973, the Board commissioned a market study to determine the p o t e n t i a l demand f o r further processed b r o i l e r products."* Further e f f o r t s i n t h i s d i r e c t i o n are pending. The Washington Fryer Commission As was mentioned previously, the Washington Fryer Commission has been empowered with the a u t h o r i t y , through t h e i r Order under the A g r i c u l t u r a l Enabling Act of 1955, to encourage the production and marketing of the regulated product through a d v e r t i s i n g and promotion, research, improvement of standards and grades, and i n v e s t i g a t i o n and prevention of u n f a i r trade p r a c t i c e s . Their conduct i n each of these areas i s described herein i n order of i t s s i g n i f i c a n c e . W. Dixon, An Analysis of the P o t e n t i a l Market for Further Processed B.C. B r o i l e r Products, September 1973, Market research conducted on behalf of the B.C. B r o i l e r Marketing Board. 58 A d v e r t i s i n g and P r o m o t i o n A d v e r t i s i n g and p r o m o t i o n have r e c e i v e d t h e g r e a t e s t amount o f a t t e n t i o n b y t h e W a s h i n g t o n F r y e r C o m m i s s i o n i n the s i x t e e n y e a r s o f i t s o p e r a t i o n . ^ A minimum o f f o u r ma jo r campa igns a r e now c o n d u c t e d e a c h y e a r , a d d i t i o n a l c a m p a i g n s b e i n g u n d e r t a k e n when n e c e s s a r y . The campa igns a r e t h e m e - c o o r d i n a t e d , and c o m p r i s e d o f p o i n t - o f - p u r c h a s e m a t e r i a l ( p o s t e r s , r e c i p e c a r d s , d a n g l e r s , c h a n n e l c a r d s ) , n e w s p a p e r , t e l e v i s i o n and r a d i o f e a t u r e s , and b i l l b o a r d d i s p l a y s . A m a j o r e m p h a s i s i s p l a c e d on e f f e c t i v e c o m m u n i c a t i o n w i t h t h e r e t a i l e r s r e g a r d i n g t h e s e c a m p a i g n s . P r i o r t o e a c h p r o m o t i o n , a f i e l d a g e n t ^ c a l l s o n a p p r o x i - m a t e l y 600 r e t a i l s t o r e s t o d i s c u s s w i t h t h e meat manage r s t h e d e t a i l s o f t h e c a m p a i g n , and s u p p l i e s them w i t h t h e n e c e s s a r y m a t e r i a l s . A c a l e n d a r i s p e r s o n a l l y d i s t r i b u t e d t o t h e s t o r e managers a t t h e b e g i n n i n g o f t h e y e a r d e s c r i b i n g i n d e t a i l t h e p l a n n e d p r o m o t i o n s t o e n a b l e t h e managers t o m o s t e f f e c t i v e l y m e r c h a n d i s e f r y e r p r o d u c t s . The C o m m i s s i o n h a s r e c e i v e d a g r e a t d e a l o f r e t a i l e r c o o p e r a - t i o n , as w e l l as i n c r e a s i n g a g g r e g a t e f r y e r demand , t h r o u g h t h e u s e o f f r e e r a d i o t a g s . T h e s e a r e c o m p r i s e d o f t e n s e c o n d s o f f r e e r a d i o b r o a d c a s t i n g t i m e , l o c a t e d a t t h e end o f t h e C o m m i s s i o n ' s r e g u l a r t h i r t y ^ One o f t h e l a r g e s t p r o b l e m s f a c i n g t h e C o m m i s s i o n i s t h e p r e s e n c e , i n t h e W a s h i n g t o n m a r k e t , o f l o w e r - p r i c e d i m p o r t e d f r y e r s f r o m t h e s o u t h e r n s t a t e s . ^ The f u n c t i o n o f t he f i e l d a g e n t a l s o i n c l u d e s t h e e n f o r c e m e n t o f l a b e l l i n g p r o v i s i o n s , p u b l i c r e l a t i o n s , and s t r e n g t h e n i n g t h e communi - c a t i o n b e t w e e n the C o m m i s s i o n and r e t a i l s e c t o r . 59 second radio advertisements. They are made a v a i l a b l e to l o c a l r e t a i l e r s to a t t r a c t customers to t h e i r stores, and i n 1973 approximately nine hours of a d v e r t i s i n g were u t i l i z e d by r e t a i l e r s i n t h i s fashion. Newspaper adv e r t i s i n g mats, often with recipes f o r Washington Fryers, are provided to the r e t a i l e r s at no charge by the Commission to further promote f r y e r sales. This greatly increases the amount of media advertisements placed by the r e t a i l e r s , as w e l l as drawing atten- t i o n to "Washington Grown Fryers." The Commission also provides to consumers, upon r e c e i p t of two "Grown i n Washington" l a b e l s , a cook- book containing recipes f o r preparing "Washington Grown Fryers." The Commission retains an independent a d v e r t i s i n g agency to produce, under t h e i r d i r e c t i o n , a l l promotional m a t e r i a l used. There i s a great deal of emphasis placed on developing an e f f e c t i v e communication network between the various segments of the industry. In 1965, the Commission formed an Advisory Committee, comprised of the major processors i n Washington, to evaluate, c r i t i c i z e , and counsel the Commission i n the planning stages of i t s programs i n an attempt to unify the industry i n the o v e r a l l production and marketing of f r y e r s . Industry-wide meetings are held y e a r l y to b r i n g together the i n t e r e s t s of producers, processors and r e t a i l e r s . A d vertising and promotion represents the major focus of the Commission's a c t i v i t i e s . In 1973, $91,414 was expended on a d v e r t i s i n g , representing approximately seventy-nine per cent of the t o t a l operating budget. 60 Improvement of Standards and Grades In August of 1957, the Commission established a L a b e l l i n g Regula- t i o n r e q u i r i n g a l l f r y e r s sold i n Washington to be l a b e l l e d as to state of o r i g i n . By 1959, they had achieved approximately ninety per cent compliance with t h i s regulation. In ad d i t i o n to being a method of standardization, t h i s l e g i s l a t i o n provided complementary support f o r t h e i r e f f o r t s i n a d v e r t i s i n g and promotion. The aim of the Commission i s to increase the demand f o r "Washington State Fryers." By s t r e s s i n g freshness ("days Fresher" than imported product), superior taste and q u a l i t y , they are appealing to the consumer to d i f f e r e n t i a t e between c l o s e l y homogeneous food products. Without the l a b e l l i n g l e g i s l a t i o n , t h i s would be impossible. While the Commission currently has a standard l a b e l , they are considering allowing l a b e l d i v e r s i f i c a t i o n (provided minimum standards are met) to increase a t t r a c t i v e n e s s and function. The enforcement of l a b e l l i n g l e g i s l a t i o n i s c a r r i e d out p r i m a r i l y through p u b l i c r e l a t i o n s e f f o r t s , however the Commission has the authority to enforce i t by means of l e g a l a c t i o n i f necessary. Due to the in t e n - s i v e promotional a c t i v i t i e s of the Commission, which have r e s u l t e d i n an increased demand f o r Washington f r y e r s , i t has become advantageous f or the r e t a i l e r to cooperate with the l a b e l l i n g regulation since i t stands to increase h i s returns. Research The area of research has not received as much att e n t i o n as adv e r t i s i n g and promotion and improvement of standards and grades, 61 however the Commission has embarked upon sev e r a l s i g n i f i c a n t p r o j e c t s . These include the i n v e s t i g a t i o n of barley and kelp as components of feed rations for f r y e r s , the encouragement and p a r t i c i p a t i o n i n the formation of the Western Feedstuffs Transportation Committee, a group comprised of representatives from eleven states to i n v e s t i g a t e and lobby f o r more equitable f r e i g h t rates for feed grains, the creation of scholarships of f i v e hundred d o l l a r s each at two major Washington uni- v e r s i t i e s to encourage research i n a l l aspects of f r y e r production and marketing, and the commissioning of two studies to i n v e s t i g a t e the consumption patterns of f r y e r products i n Washington State. Researchj plans f o r the near future include i n v e s t i g a t i o n of production costs to g include housing, f u e l , v e n t i l a t i o n and management. Inv e s t i g a t i o n and Prevention of Unfair Trade P r a c t i c e s The authority of the Commission to i n v e s t i g a t e and c u r t a i l u n f a i r trade p r a c t i c e s has been invoked p r i m a r i l y i n the case of r e t a i l e r s using f r y e r products as " l o s s leaders," and p r i c i n g them below cost to a t t r a c t consumers i n t o the stores. They have been l a r g e l y s u c c e s s f u l i n preventing t h i s p r a c t i c e through persuasion, however several cases have required court a c t i o n before they could be resolved. Personal communication with A l l a n Johnson, Manager, Washington Fryer Commission. 62 Summary The B.C. B r o i l e r Marketing Board's major area of a c t i v i t y has been the regulation of domestic production through the use of production quotas. Returns to producers are based on p r i c e s e s t a b l i s h e d by the 9 Board. Imported product has been e f f e c t i v e l y eliminated from the B r i t i s h Columbia market through passage of Import Order No. 1. The Board has refused to support the proposed National Chicken Marketing Plan, since i t stands to c u r t a i l the powers cur r e n t l y enjoyed by the Board regarding the r e s t r i c t i o n of imported product, the d i s p o s i t i o n of surplus product, and the a b i l i t y to define future growth i n p r o v i n c i a l b r o i l e r production. The Board has s u c c e s s f u l l y maintained the concept of the family farm through regulations placed on quota holdings and quota transfer. A d v e r t i s i n g , promotion and research have been undertaken as w e l l , although the majority of the Board's a c t i v i t i e s have been i n production r e g u l a t i o n rather than these l a t t e r three areas. Due to the existence of competing product i n the Washington market, the a c t i v i t i e s of the Washington Fryer Commission have been focussed p r i m a r i l y i n the area of a d v e r t i s i n g and promotion. The Commission had also been concerned with the enforcement of s t a t e - o f - o r i g i n l a b e l l i n g , a regulation which i t passed i n 1957. Their a c t i v i t i e s i n the area of research have been p r i m a r i l y devoted to reducing cost of production through 9 As of June 1974, the p r i c e established f o r b r o i l e r breeder hatching eggs to the hatcheries was $1.27 per dozen and for f i n i s h e d b r o i l e r chickens to the processor the p r i c e was 36.5 cents per pound liveweight. 63 lower priced feed r a t i o n s , improvement of production methodology, and studying patterns of demand for b r o i l e r s i n Washington. The Commission has al s o , through the i n v e s t i g a t i o n and prevention of u n f a i r trade p r a c t i c e s , been succ e s s f u l i n preventing r e t a i l stores from s e l l i n g f r y e r s at below-cost p r i c e . CHAPTER V PERFORMANCE Introduction In attempting to analyze the performance of the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission with respect to the concepts of organized marketing, c e r t a i n c r i t e r i a of performance must f i r s t be established. The goal of an organized marketing approach i n a g r i c u l t u r e , as discussed i n Chapter I I , i s to increase the market power of producers by functioning i n a c o l l e c t i v e fashion to (a) improve production, (b) improve response to market conditions, (c) improve channels of d i s t r i - bution, and (d) achieve market expansion. While many c r i t e r i a could be drawn from t h i s model, eight have been chosen f o r review i n t h i s study. These are: A. To measure improvements i n the area of production, structures of production and returns to producers have been chosen. B. To measure the degree to which response to market conditions have been improved, the c r i t e r i a of p r i c e , supply, and competition have been selected. C. To determine the extent to which e f f e c t i v e channels of d i s t r i b u t i o n have been created, r e l a t i o n s h i p s with processors and r e t a i l e r s are examined. 64 65 D. To measure e f f o r t s i n the area of market expansion, per- formance i n the areas of a d v e r t i s i n g and promotion and research are evaluated. The observed differences i n performance i n the B r i t i s h Columbia and Washington markets, with respect to the c r i t e r i a parameters mentioned above are f i r s t presented, followed by a discussion of the f a c t o r s con- t r i b u t i n g to the observed d i f f e r e n c e s . By i n v e s t i g a t i n g the performance of the two groups on the basis of these c r i t e r i a , i t i s possible to approach a more orderly evaluation with respect to performance of each, thereby f a c i l i t a t i n g a comparative evaluation. While market data f o r the b r o i l e r industry i n B r i t i s h Columbia and Washington i s dealt with s p e c i f i c a l l y i n the following s e c t i o n s , an overview of the h i s t o r i c a l data i n each market provides a measure of industry perspective. Background Tables 1 and 2 present h i s t o r i c a l data i n the b r o i l e r i n d u s t r i e s i n B r i t i s h Columbia and Washington respectively."'' As may be observed from the data presented, production has increased i n both markets. Average liveweight p r i c e s to producers have tended to f l u c t u a t e , with high ranges i n the l a t e 1940's, during the 1950's, and again i n 1973. Average For purposes of comparison, a l l figures r e l a t i n g to b r o i l e r production i n B.C. exclude product c l a s s i f i e d as roasters and Rock Cornish Game Hens. Production figures f o r B r i t i s h Columbia and Washington State are those reported by the Canada Department of A g r i c u l t u r e and the U.S. Department of A g r i c u l t u r e r e s p e c t i v e l y . 66 T a b l e 1. B r i t i s h C o l u m b i a B r o i l e r I n d u s t r y , P r o d u c t i o n , G r o ss Income and P r i c e s , 1953-1973 P r o d u c t i o n G r o s s P r i c e s I n come 0 Y e a r No. b L i v e wt. E v i s . COOO) P r o d u c e r Wholesale* 3 R e t a i l d COOO) wt. Mon- Van- Mon- Van- V a n c o u v e r l b s . ('000) t r e a l c o u v e r t r e a l c o u v e r (Dec. 30) p 1953 —— 4495 3327 1326 31.4 29.5 40.9 — — R 1954 — 4067 3010 1045 23.4 25.7 33.2 — — E 1955 — 6025 4459 1693 28.1 26.9 35.8 — — B 1956 — 8468 6266 2193 24.3 25.9 31.6 — — 0 1957 — 9393 6944 2387 23.4 25.4 30.9 — — A 1958 — 14558 10773 3566 21.9 24.5 29.3 — — R 1959 — 20159 149.8 4475 19.9 23.2 25.5 — — D 1960 — 25046 18534 5384 20.1 21.5 25.7 — — 1961 8082 27847 20607 5068 17.3 18.2 23.2 — — 1962 7666 26774 19813 5689 19.8 21.3 24.6 — — P 1963 8939 32878 24330 7266 20.1 22.1 25.1 — — 0 1964 8776 32597 24122 6258 18.5 19.2 — — — S T 1965 9569 34512 25539 8806 27.0 25.5 37.8 37.4 — . X 1966 11361 41388 30627 9147 21.2 22.1 35.0 40.0 B 1967 11465 41801 30933 8987 19.0 21.5 32.6 38.4 52.0 0 1968 11246 40712 30127 8957 19.8 22.0 34.4 41.2 55.0 A 1969 12817 47603 35226 10615 18.6 22.3 32.6 43.4 52.0 R r> 1970 14204 51822 39348 10725 17.2 20.7 30.2 39.2 55.0 U 1971 15447 57622 43640 12677 18.3 22.0 33.4 41.9 59.0 1972 17297 65605 48547 14958 21.3 22.8 38.9 43.9 65.0 1973 18987 71966 53256 22093 29.4 30.7 53.6 60.0 89-95 P r o d u c t i o n (head) 1953-60 b a s e d on b i r d s l e s s t h a n 4 l b s . 1961-62 b a s e d on b i r d s l e s s t h a n 3 l b s . 1963-73 bas e d on b i r d s l e s s t h a n 4 l b s . LW & Wh P r i c e 1953-55 b a s e d on b i r d s l e s s t h a n 3 l b s . 1956-62 b a s e d on b i r d s l e s s t h a n 4 l b s . and l e s s t h a n 3.5 l b s . r e s p e c t i v e l y . 1963-64 b a s e d on b i r d s l e s s t h a n 5 l b s . and l e s s t h a n 4.5 l b s . r e s p e c t i v e l y 1965-73 b a s e d on b i r d s l e s s t h a n 5 l b s . and l e s s t h a n 4 l b s . r e s p e c t i v e l y A g r i c u l t u r e Canada, P o u l t r y M a r k e t Review, M a r k e t s I n f o r m a t i o n S e c t i o n , P o u l t r y D i v i s i o n , P r o d u c t i o n and M a r k e t i n g B r a n c h , O t t a w a , Canada, 1961-1973 D e r i v e d from e v i s c e r a t e d w e i g h t d a t a . B.C. B r o i l e r M a r k e t i n g Board A n n u a l R e p o r t s , 1966-1973. 67 Table 2. Washington State B r o i l e r Industry, Production, Gross Income and P r i c e s , 1940-1973 Production Gross Pr i c e s Income Year No. Lbs.LW 3 a Producer R e t a i l ('000) ('000) ($'000) (Cents per lb.) 1940 840 2184 321 17.0 — 1941 1092 2948 531 18.0 — 1942 1529 4128 1073 26.0 — p 1943 2141 5781 1734 30.0 — R 1944 1991 5376 1720 32.0 — E 1945 2986 8659 2771 32.0 — 1946 1792 5197 1818 35.0 — 1947 3136 9094 3274 36.0 — 0 ut 1948 3763 11665 4433 38.0 — M M 1949 4741 14223 4409 31.0 — I 1950 4646 14403 4465 31.0 — S 1951 7666 25298 7842 31.0 — . S 1952 7513 23290 7150 30.7 — 0 1953 8339 26685 7819 29.3 71.4 N 1954 9590 29729 7759 26.1 66.0 1955 9782 30324 8036 26.5 65.4 1956 11115 37791 8692 23.0 60.7 1957 11671 39681 8730 22.0 59.7 1958 14939 50793 10514 20.7 60.0 P 1959 15985 54349 10109 18.6 54.3 0 1960 15505 52717 10069 19.1 54.0 b rp 1961 15970 54298 9013 16.6 49.7 T 1962 15426 57076 99 88 17.5 50.3 / - i 1963 18175 65430 11385 17.4 49.6 C 0 1964 19221 71118 11948 16.8 47.0 M 1965 21030 75708 13097 17.3 47.8 M 1966 22412 82924 14926 18.0 51.3 I 1967 21980 83524 14283 17.1 48.4 S 1968 21288 80894 14318 17.7 48.9 S 1969 21436 83600 15382 18.4 — I 1970 21118 82360 14578 17.7 — U 1971 14931 58231 10715 18.4 — N 1972 16396 63944 11766 18.4 1973 17575 68543 18232 26.6 — Source: 1940-1968 U.S. Department of A g r i c u l t u r e , Washington Department of A g r i c u l t u r e , Washington Poultry, S e a t t l e , Washing- ton and Olympia, Washington, U.S.A., 1969 1969-1973 U.S. Department of A g r i c u l t u r e , Chicken and Eggs Pro- duction, D i s p o s i t i o n , Cash Receipts and Gross Income by States, Crop Reporting Board, S t a t i s t i c a l Reporting Service, Washington, D.C, U.S.A. POU 2-3 (69-73). Liveweight Basis. 6 8 wholesale and r e t a i l p r i c e s have f l u c t u a t e d i n a s i m i l a r manner as w e l l i n response to producer p r i c e s . To determine the observed e f f e c t s of the Board and Commission on production volume and p r i c e , an index based on a three year average of production and p r i c e p r i o r to the operation of the Board and Commission was compiled. Tables 3 and 4 present index values f o r commercial b r o i l e r s , number and pounds produced, p r i c e per pound, and gross income i n the B r i t i s h Columbia and Washington market r e s p e c t i v e l y . As may be observed from the data presented, both p r i c e per pound (liveweight) paid to producers and gross income paid to producers, has increased at a f a s t e r rate i n the B r i t i s h Columbia market since the inc e p t i o n of the Board. Several noticeable s h i f t s i n production and p r i c e , which have occurred for reasons outside the c o n t r o l of the Board or Commission, may be observed i n both markets. In 1970 the b r o i l e r production i n Washington State f e l l s i g n i f i - 2 c a n t l y . This may be a t t r i b u t e d to three f a c t o r s occuring during 1970. (a) The i n s t i t u t i o n of new regulations concerning the inspection of processing p l a n t s , r e s u l t i n g i n the closure of s e v e r a l plants. (b) The withdrawal of feed i n t e r e s t s from the Washington Market by s e v e r a l major feeding companies. (c) The sale of competing product at d i s t r e s s e d p r i c e s i n the Washington market. Washington Fryer Commission Annual Report, 1970. 69 Table 3. Index Numbers for B r i t i s h Columbia Commercial B r o i l e r s , Numbers and Pounds of Production, Gross Income and P r i c e per Pound paid to Producer^ 1961-1973 (1959-61 = 100) Year Production Gross Income P r i c e / l b to Producer No. Lbs. 1962 94.9 110.0 114.3 103.2 1963 110.6 135.0 146.0 107.3 1964 108.6 133.9 125.8 93.2 1965 118.4 141.7 177.0 123.8 1966 140.6 170.0 183.8 107.3 1967 141.9 171.7 180.6 104.4 1968 139.1 167.2 180.0 106.8 1969 158.6 195.5 213.3 108.3 1970 175.7 218.4 215.5 100.5 1971 191.1 242.2 254.8 106.8 1972 214.0 269.4 300.6 110.7 1973 234.9 295.5 444.0 149.0 Source: Derived from Table 1 (p. 66). a Index for production based on 1961 data. Livewight b a s i s . Table 4. Index Numbers for Washington Commercial Broilers, Numbers and Pounds of Production, Gross Income and Price Per Paid to Producer 3 1957-1973 (1954-56 = 100) Year Production Gross Prices Income No. Lbs. Producer 5 Retail 1957 114.8 121.6 107.0 87.3 93.2 1958 147.0 156.7 128.8 82.1 93.7 1959 157.3 166.6 123.9 73.8 84.8 1960 152.6 162.6 124.6 75.7 84.3 1961 157.2 166.4 110.4 65.9 77.6 1962 151.8 174.9 122.4 69.4 78.6 1963 178.9 200.6 139.5 69.0 77.5 1964 189.1 218.1 146.4 66.6 73.4 1965 206.9 232.1 160.5 68.6 74.7 1966 220.5 254.3 182.9 71.4 80.1 1967 216.3 256.1 175.0 67.9 75.6 1968 209.5 248.0 175.4 70.2 76.6 1969 210.9 256.3 188.5 73.0 — 1970 207.8 252.5 178.6 70.2 1971 146.9 178.5 131.3 73.0 — 1972 161.3 196.1 144.2 73.0 — 1973 172.9 210.2 223.4 105.5 — Source: Derived from Table 2 (p. 67). Liveweight basis. 71 Another aspect observed when contrasting the differences i n c r i t e r i a parameters i n B r i t i s h Columbia and Washington i s the increase i n product p r i c e and returns to producers i n both markets during the l a s t year and a h a l f . The factors a f f e c t i n g these changes were d r a s t i c s h i f t s i n the o v e r a l l economy as opposed to actions of the Board or Commission. Since, i n the b r o i l e r industry, feed represents approximately seventy per cent of the input cost, the world grain shortages and r e s u l t i n g i n - creases i n the p r i c e of feed had a great influence on the p r i c e of b r o i l e r products. While the stimulus f o r these changes i s external, we should be able to measure the industry r e a c t i o n through the use of defined c r i t e r i a . Production (a) Structures of Production Table 5 presents a comparison of s t r u c t u r e , supply and p r i c e i n the b r o i l e r industry i n B r i t i s h Columbia and Washington as of June 1974. When the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission were established, there were 261 and 640 producers respec- t i v e l y . As of June 1974, there were 139 b r o i l e r producers i n B r i t i s h Columbia and 125 i n Washington State. As may be observed i n Figure 2, ninety per cent of the growers i n B r i t i s h Columbia are operating farms of under 45,000 b i r d s per c y c l e , and f o r t y - e i g h t per cent of the producers hold quotas ranging between 25,000 and 45,000 b i r d s per cycle. Information obtained through personal interview with producers and processors i n the Washington market i n d i c a t e s that average farm s i z e f a l l s between 40,000 7 2 3 B.C. A g r i c u l t u r e Canada P o u l t r y M a r k e t Review, 1 9 7 3 . Wash. U.S. Department o f A g r i c u l t u r e , C h i c k e n and Eggs P r o d u c t i o n , D i s p o s i t i o n Cash R e c e i p t s and C r o s s Income b y S t a t e s . Pou 2 - 3 ( 7 3 ) . k B.C. B.C. B r o i l e r M a r k e t i n g Board A n n u a l R e p o r t 1 9 7 3 . Wash. U.S. Department o f A g r i c u l t u r e , Commercial B r o i l e r P r o d u c t i o n , W ashington Crop and L i v e s t o c k R e p o r t i n g S e r v i c e , S t a t i s t i c a l R e p o r t i n g S e r v i c e , S t a t e S t a t i s t i c a l O f f i c e and W a s h i n g t o n S t a t e Department of A g r i c u l t u r e , S e a t t l e , W a s h i n g t o n , March 3 1 , 1974 . B.C. P e r s o n a l c o m m u n i c a t i o n , A r t S t a f f o r d , Manager, B.C. B r o i l e r M a r k e t i n g B o a r d , June 1 2 , 19 74. Wash. P e r s o n a l c o m m u n i c a t i o n , A l l a n J o h n s o n , Manager, W a s h i n g t o n F r y e r C ommission, June 5 , 1974 . ^ B.C. D e r i v e d f r o m Quota D i s t r i b u t i o n R o s t e r , B.C. B r o i l e r M a r k e t i n g B o a r d , June 19 74 . Wash. P e r s o n a l c o m m u n i c a t i o n w i t h p r o d u c e r s and p r o c e s s o r s i n b r o i l e r i n d u s t r y i n W a s h i n g t o n , June 1974 . B.C. Wash, B.C. Wash, P e r s o n a l c o m m u n i c a t i o n , A r t S t a f f o r d , op. c i t . P e r s o n a l c o m m u n i c a t i o n , A r t K o p l o w i t z , P r e s i d e n t , D r a p e r V a l l e y Farms, June 6 , 19 74 . P e r s o n a l c o m m u n i c a t i o n , Dr. H i c k s , B u c k e r f i e l d s L t d . , June 1 2 , 1974 . ( P r i c e b a s e d on 9 -10 t o n o r d e r ) . P e r s o n a l c o m m u n i c a t i o n , A r t Massey, D i v i s i o n Manager, P o u l t r y and Eggs, W e s t e r n Farmers A s s o c i a t i o n , June 5 , 1974 ( p r i c e b a s e d on £ 20 t o n o r d e r ) . ^ Only one grower r a t i o n i s used i n B r i t i s h C o l u m b i a . h B.C. P e r s o n a l c o m m u n i c a t i o n , A r t S t a f f o r d , op. c i t . Wash. P e r s o n a l c o m m u n i c a t i o n , A r t Massey, op. c i t . B.C. Wash, Canada Department o f A g r i c u l t u r e P o u l t r y M a r k e t R e p o r t . M a r k e t s I n f o r m a t i o n S e c t i o n and P o u l t r y D i v i s i o n , Weekly R e p o r t / /22 , Ottawa, O n t a r i o , June 7 , 1974 (week e n d i n g June 1, 1 9 7 4 ) . P e r s o n a l c o m m u n i c a t i o n , A r t Massey, op. c i t . P e r s o n a l c o m m u n i c a t i o n , A r t K o p l o w i t z , op. c i t . B.C. Wash. Canada Department o f A g r i c u l t u r e , P o u l t r y M a r k e t R e p o r t . P e r s o n a l c o m m u n i c a t i o n , R e t a i l e r i n Wa s h i n g t o n M a r k e t , June 1 9 7 4 . 73 Table 5. B r i t i s h Columbia and Washington State B r o i l e r Industry Structure, Supply and P r i c e . B r i t i s h Columbia Washington State Structure number of b r o i l e r growers' number of processors 0 s i z e of units - b i r d s / c y c l e 139 9 48% from 25-45000 24% from 35-45000 125 5 40000-45000 Supply Volume 1973c Avg. liveweight 1973 18,987,000 3.78 17,575,000 3.9 P r i c e Hatching eggs/dozen $ 1.27 C h i c k s 6 $/ea .215 Feed/ton^ $ b r o i l e r breeder 155.00 b r o i l e r s t a r t e r 184.00 e grower I grower II 184.00 f i n i s h e r 181.00 B r o i l e r - l b s , liveweight* 1 $ . 355 B r o i l e r wholesale/lb. GDA1 $ .58-.59 1.00-1.20 .152 134.50 168.00 165.00 164.50 159.00 .265 .44 B r o i l e r r e t a i l / l b Grade A - whole, f r e shl .89-.95 .49-.55 20 15 Percent of To t a l Quota 10 H 5 H i O ON ON ON I O ON O ON O ON LO ON i O ON . O ON O ON ! O ON O ON O ON I O ON O ON O ON I O ON O ON O ON I o o O ON O ON O ON O ON O ON O ON O ON I O ON O ON O ON ! O ON O ON O ON I o o o I O ON O ON O ON o o o -3- H LO ON CM CN LO LO CNJ CNJ CO CO LO ON CO CO o LO ON O -3-LO LO LO ON LO LO O <f vO vO LO ON vO vO I O ON O ON O ON r. rt o >* ON ON Class Size (Number Birds/Cycle) Percent Growers i n Class Cumulative Percent Growers i n Class 2.2 15.8 5.8 10.8 8.6 13.0 LI. 5 10.1 13.0 2.9 1.4 0.7 O.C 1.4 0.0 1.4 2.2 18.0 23.8 34.6 43.2 56.2 67.7 77.8 90.8 93.7 95.1 95. i 95.8 97.2 97.2 98.6 0. 7 B9.3 0. 7 100.6 Figure 2. Quota D i s t r i b u t i o n B.C. B r o i l e r Marketing Board, June 1974 Source: Quota D i s t r i b u t i o n Roster, B.C. B r o i l e r Marketing Board, June 1974. 75 to 45,000 birds per c y c l e , and that l a r g e r units are more prevalent than i n B r i t i s h Columbia. There are several s t r i k i n g contrasts i n the structures of production between the two markets. In B r i t i s h Columbia, most growers are independent i n the sense that they are not financed by or a f f i l i a t e d with any major a l l i e d industry groups. In Washington, the concept of v e r t i c a l i n t e g r a t i o n i s more widely p r a c t i s e d . Approximately ninety per cent of the growers are operating on a contract basis with large pro- cessors, and the majority of the remaining growers are associated with Western Farmers A s s o c i a t i o n , a grower cooperative. In summary, while the number of growers i s s i m i l a r i n both markets, the s i z e of the units tends to be l a r g e r i n the Washington market. The structure of production i n the two markets also d i f f e r s — i n B r i t i s h Columbia i t i s based on the concept of the family farm and i n Washington i t i s based on the p r i n c i p l e of v e r t i c a l i n t e g r a t i o n . (b) Returns to Producers Figure 3 presents annual gross industry income to b r o i l e r producers i n the B r i t i s h Columbia and Washington markets f o r the years 1953 to 1973. From t h i s information i t may be observed that u n t i l 1971, annual gross returns to producers i n Washington exceeded those i n B r i t i s h Columbia. This may be a t t r i b u t e d to higher production volumes i n Wash- ington f o r that period. To compare increases i n gross returns i n each market since the i n c e p t i o n of the Board and Commission, an index of the annual gross return received by growers i n the three year period p r i o r 76 Gross Income (thou, of d o l l a r s ) 22,000 21,000 - 20,000 - 19,000 - 18,000 - 17,000 - 16,000 " 15,000 14,000 13,000 12,000 " 11,000 - 10,000 9,000 -| 8,000 7,000 6,000 5,000 4,000 3,000 " 2,000 - 1,000 - 0 Year Source: B.C. Wash —I j | j j | | j ; | | | | j | | | | | | | r 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 Figure 3. Annual Gross Income to B r o i l e r Producers i n B r i t i s h Columbia and Washington State, 1953-1973 Tables 1 and 2 (pp. 66,67). 77 to the operation of the Board and Commission was c a l c u l a t e d and set to one hundred. I t was observed that, while gross returns to producers increased at approximately the same rate during 1961 to 1966, gross returns to producers have increased at a f a s t e r rate i n B r i t i s h Columbia than i n Washington State from the year 1966 onward. The greatest d i f f e r - ence i n gross returns to the producers, based on index values, i s found i n 1973. What does t h i s d i f f e r e n t i a l mean f o r i n d i v i d u a l growers i n 1974? In B r i t i s h Columbia, the B.C. B r o i l e r Marketing Board cu r r e n t l y defines an economic u n i t as 40,000 b i r d s per c y c l e . To a r r i v e at the returns to a grower operating t h i s s i z e u n i t i n B r i t i s h Columbia and Washington, 3 cost of production data for 1974 was obtained f o r each area. Table 6 presents the f i x e d and v a r i a b l e costs observed i n the B r i t i s h Columbia and Washington market, June 1974. The estimated returns and costs f o r a 40,000 b i r d per cycle u n i t i n the B r i t i s h Columbia and Washington markets, June 1974, are presented i n Table 7 (per bird) and Table 8 (per annum). The net return to management and c a p i t a l f o r a 40,000 b i r d per cycle producer, based on p r i c e s as of June 1974, i s 22.7 cents per b i r d i n B r i t i s h Columbia and 9.2 cents per b i r d i n Washington State. Since, i n both markets, a unit of t h i s s i z e i s considered to be a one-person The m a t e r i a l presented was obtained and v e r i f i e d through per- sonal interviews conducted with representative producers i n each market, cooperative producer groups i n Washington, major feed d i s t r i b u t o r s , the Washington State Extension Service, the U n i v e r s i t y of B r i t i s h Columbia Poultry Science Department, the B.C. Department of A g r i c u l t u r e , and Board and Commission members. 78 Table 6. Estimates of V a r i a b l e and F i x e d Costs per B i r d f o r 40,000 b i r d s / c y c l e B r o i l e r Operation, B r i t i s h Columbia and Washington S t a t e , June 1974 V a r i a b l e Costs Brood, e l e c t r i c i t y M e d i cation Catching L i t t e r a b B r i t i s h Columbia Washington St a t e 2.5C 1.5C 1.5C l.OC 6.5C 2 . 5 C • 3C .8c • 9c 4.5C F i x e d Costs Taxes, insurance, o p e r a t i o n of machinery, maintenance and d e p r e c i a t i o n 6.689C 2.0c T o t a l V a r i a b l e and F i x e d C o s t / B i r d 13.189C 6.5C P e r s o n a l communication, Herb Gasperdone, P o u l t r y S p e c i a l i s t , BCDA P o u l t r y Test S t a t i o n , Abbotsford, B.C., June 1974 and v e r i f i e d by r e p r e s e n t a t i v e persons i n the b r o i l e r i n d u s t r y i n B r i t i s h Columbia. k P e r s o n a l communication, Dr. D. Andrews, Extension P o u l t r y S p e c i a l i s t , Western Washington Research and Extension Centre, P u y a l l u p , Washing- ton, J u l y 1974 and v e r i f i e d by Washington Fryer Commission members, and r e p r e s e n t a t i v e persons i n the b r o i l e r i n d u s t r y i n Washington State. Propane = 2c/head, E l e c t r i c i t y = .5c/head. 79 Table 7. Estimate of Returns and Costs Per B i r d for 40,000 Birds/Cycle B r o i l e r Operation, B r i t i s h Columbia and Washington State, June 1974. B r i t i s h Columbia Washington State A. Returns L.W. p r i c e / l b Avg. l b s . L.W. Gross r e t u r n / b i r d 35.5c 3.78 26.5C 3.9 134.19c 103.35C B. Expenses Feed p r i c e / l b . Feed conversion Total cost feed/lb at L.W. Avg. L.W. at slaughter T o t a l feed cost Chick cost Variable costs brood, l i t t e r , l i g h t s , water Fixed costs depreciation, taxes, maintenance Board/Commission levy 09.1435 2.2 20.1157C 3.78 76.037C 21.5C 6.5C 6.689C 0. 76<? 08.3685 2.2 18.4107C 3.9 71.8017C 15.2C 4.0C 2.5C 0.663C T o t a l Expense 111.476c 94.16C C. Return to management & c a p i t a l 22.714C 9.19C 80 Table 8. Estimate of T o t a l Gross Returns, Costs and Net Returns per Annum for 40,000 Birds/Cycle B r o i l e r Operation. B r i t i s h Columbia and Washington S t a t e 3 B r i t i s h Columbia Washington State A. Gross Returns B i r d s / c y c l e 40,000 40,000 Cycles/year 4.7 4.7 Birds/year 188,000 188,000 Avg. L.W.(lbs.) 3.78 3.9 To t a l pounds/year 710,640 733,200 Avg. l i v e p r i c e / l b . $ 0.355 $ 0.265 Gross return/year $252,277 Expenses Feed: T o t a l l b s / y r b r o i l e r s 710,640 733,200 Feed conversion 2.2 2.2 $194,298 T o t a l feed (tons) 781.7 806.52 Avg. price/ton $ 182.87 $ 167.37 T o t a l feed- cost $142,950 $134,987 Chick p r i c e (each) $ 0.215 $ 0.152 Birds/year 188,000 188,000 T o t a l chick cost $ 40,420 $ 28,576 Variable costs brood, l i t t e r , l i g h t s , medication $ 12,200 $ 8,460 Fixed costs Taxes, depreciation, maintenance $ 12,575 $ 3,760 Board/Commission Levy (3/4c per bird) $ 1,410 (.17 cents/lb) $ 1,246 T o t a l Expense $209,575 $177,029 C. Net return to management & c a p i t a l $ 42,702 $ 17,269 a Based on June 1974 Industry p r i c e s , costs and conversion factors as reported by industry representatives. 81 operation, t h i s amounts to an annual return to c a p i t a l and management of $42,702 i n B r i t i s h Columbia and $17,269 i n Washington, or a d i f f e r e n - t i a l i n producer returns of $25.433 per annum i n favour of the B r i t i s h Columbia producers. In attempting to assess the c a p i t a l investment required i n each market, a s i m i l a r procedure to that used f o r production costs and returns 4 was followed. The findings are presented i n Table 9. When allowing fo r a s i x per cent return on c a p i t a l investment,"* the net return, to manage- ment f o r a 40,000 b i r d per cycle unit i n B r i t i s h Columbia and Washington i s $22,600 and $8,480 r e s p e c t i v e l y . In summary, u n t i l the end of the 1960's, gross returns to a l l producers were higher i n Washington than they were i n B r i t i s h Columbia. In the e a r l y 1970's, as t o t a l production i n B r i t i s h Columbia s t a r t e d to exceed that of Washington State, t o t a l returns to B r i t i s h Columbia growers surpassed those received i n Washington. This i s l a r g e l y a r e f l e c t i o n of production volume i n the two areas and says l i t t l e about i n d i v i d u a l producer For B r i t i s h Columbia, figures were provided by the B.C. Depart- ment of A g r i c u l t u r e and v e r i f i e d by representative persons i n the b r o i l e r industry and an a g r i c u l t u r a l loan o f f i c e r of a large commercial bank. For Washington, figures were supplied by the U.S. Federal Land Bank Commission, the Washington State Extension Service, Western Farmers Ass o c i a t i o n , B u i l d i n g Department, and v e r i f i e d by representative members of the b r o i l e r industry. "* This rate of return was established through consultation with the B.C. Department of A g r i c u l t u r e and the U n i v e r s i t y of B r i t i s h Columbia. ^ I t should be noted that i n Washington, farm s i z e tends to be s l i g h t l y l a r g e r than 40,000 birds per c y c l e , however the comparison was based on a u n i t of 40,000 bi r d s since t h i s i s the average producer s i z e i n B r i t i s h Columbia. 82 Table 9. Estimates of C a p i t a l Investment Requirements and Interest Costs per Annum for a 40,000 Bird/Cycle B r o i l e r Operation i n B r i t i s h Columbia and Washington State, June 1974 BRITISH COLUMBIA Investment $ Land 3 - 10 acres @ $5000 per acre 50,000 Buildings - $3.50/sq. foot * 40,000 birds * .75/sq. foot/bird 105,000 Equipment - $ .65/sq. foot * 40,000 birds * .75/sq. foot/bird 19,500 Truck, tractor, etc. 10,500 Quota @ $3.75/bird * 40,000 birds 150,000 Total Investment 335,000 INTEREST Interest on investment/year @ 6% 20,100 WASHINGTON STATE Investment Land 3 - 20 acres @ $1500 per acre 30,000 Buildings - $2.75/sq. foot * 40,000 birds * .75/sq. f o o t / b i r d 82,500 Equipment - $ ..65/sq. foot * 40,000 b i r d s * .75/sq. f o o t / b i r d 19,500 Truck, t r a c t o r , etc. 14,500 To t a l Investment 146,500 INTEREST Interest on investment/year @ 6% 8,790 3 The normal amount of land required f o r a 40,000 b i r d / c y c l e operation i n Washington i s greater since they encourage a l a r g e r s o c i e t y " b u f f e r " zone. 83 returns. On the basis of estimated costs of production f o r June, 1974, f o r a 40,000 b i r d per cycle unit i n both markets, returns to growers i n B r i t i s h Columbia are approximately double what they are i n Washington. Market Conditions (a) P r i c e Figure 4 presents an h i s t o r i c a l comparison of monthly average pr i c e s paid f o r b r o i l e r products at the r e t a i l and farm l e v e l i n Canada and the United States. Table 10 presents an h i s t o r i c a l comparison of the annual average p r i c e paid to producers of b r o i l e r products i n Canada and the United States. This information i s also presented i n Figure 5. From t h i s information, i t i s po s s i b l e to observe that, since 1960, p r i c e s i n the b r o i l e r market have t r a d i t i o n a l l y been higher i n Canada than i n the United States. This s i t u a t i o n was not always the case i n the B r i t i s h Columbia and Washington markets. Figure 6 presents the average annual p r i c e paid to producers of b r o i l e r products i n Washington and B r i t i s h Columbia. From t h i s information, i t may be seen that, during the years 1953 to 1955, prices paid to producers f o r b r o i l e r products i n both markets were very c l o s e l y aligned. From 1955 u n t i l 1961, the producers i n B r i t i s h Columbia received a higher p r i c e f o r t h e i r product, however the average annual p r i c e d i f f e r e n t i a l was only 2.7 cents per pound. Follow- ing the i n c e p t i o n of the B.C. B r o i l e r Marketing Board i n 1961, annual pr i c e s paid to producers i n B.C. averaged 4.3 cents per pound higher than those i n Washington. 84 PRICE cents per pound Figure 4. Grade A Chicken Prices, Producer and Retail Canada and the United States by Months January 1960 to July 1963 Source: Canada: Agriculture Canada Poultry Market Review, 1960-1973 United States: United States Department of Agriculture Poultry and Egg Situation 1960-1973. 85 Table 10. Weighted Annual Average P r i c e Per Pound Paid to B r o i l e r Producers, Canada and the United States, 1960-19 73 Year Canada 3 United States* 3 D i f f e r e n t i a l Difference Per Cent; (cents per lb) Liveweight 1960 20.8 16.9 3.9 18.8 1961 17.2 13.9 3.3 19.2 1962 19.0 15.2 3.8 20.0 1963 20.0 14.6 5.4 27.0 1964 18.1 14.2 3.9 21.6 1965 19.5 15.0 4.5 23.1 1966 21.0 15.2 5.7 27.1 1967 19.6 13.3 6.3 32.1 1968 20.6 14.2 6.4 31.1 1969 19.8 15.2 4.6 23.2 1970 18.5 13.5 5.0 27.0 1971 19.9 13.8 6.1 30.7 1972 21.9 . 14.3 7.6 34.7 1973 31.3 25.1 6.2 19.8 A g r i c u l t u r e Canada, Poultry Market Review, 1960-19 72. 1973 figures derived from Table 13, p. 94. k U.S. Dept. of A g r i c u l t u r e , Handbook of A g r i c u l t u r a l Charts, 1960-1972. 1973 figures derived from Table 13, p. 94. P r i c e cents per pound liveweight Year 60 61 62 63 64 65 66 67 68 69 70 71 72 73 Figure 5. B r o i l e r P r i c e s : Annual Weighted Average P r i c e Paid to B r o i l e r Producer—Canada and United States, 1960-1973. Source: Table 10, p. 85. 87 B r i t i s h Columbia Year 55 60 65 70 73 Figure 6. Average Annual P r i c e Paid to B r o i l e r Producers B r i t i s h Columbia and Washington State, 1940-1973 Source: A g r i c u l t u r e Canada, Poultry Market Review (1953-1973), U.S. Department of A g r i c u l t u r e , Washington Poultry. U.S. Department of A g r i c u l t u r e , Chicken and Eggs, (1969-1973) 88 While we are able to judge p r i c e d i f f e r e n t i a l s i n t h i s fashion, i t does not provide an e f f e c t i v e means of determining the influence of the Board and Commission on p r i c e s paid to p .-ducers i n each market. An index of the average p r i c e per pound paid i n the three years p r i o r to the operation of the Board and Commission provides one means of measuring changes i n p r i c e a f t e r t h e i r inception. Figure 7 presents the index values of annual p r i c e per pound paid to b r o i l e r producers i n B r i t i s h Columbia and Washington where the h i s t o r i c a l index value has been ca l c u l a t e d on the average p r i c e per pound paid to producers i n each market three years p r i o r to the inception of the Board and Commission and set at one hundred. From t h i s i t may be seen t h a t } i n B r i t i s h Columbia, the index has only dropped below one hundred once since the marketing Board began operations, whereas, i n Washington State, the index rose above one hundred only once since the operation of the Commission. I t would thus appear that the B.C. B r o i l e r Marketing Board has been more e f f e c t i v e i n increasing p r i c e s paid to producers than has been the Washington Fryer Commission. Since p r i c e s paid to producers i n both markets declined during 1956-1961, and, i n f a c t , reached t h e i r lowest point i n 1961, a more e f f e c t i v e comparison of the two markets may p o s s i b l y be obtained from using a common index base. Table 11 presents the index values of p r i c e per pound paid to b r o i l e r producers i n B r i t i s h Columbia and Washington, with an index base of 1959-1961 set to 100. This information i s also presented i n Figure 8. From this i t may be observed that while the actions of the B.C. B r o i l e r Marketing Board have s t i l l been more e f f e c t i v e 89 160 H 150 -J INDEX British Columbia Washington State 140 130 H 120-4 110-^ 100 -4 90-J 80" 70 V \ v- • 60* ' i i n i i i i 1 1 1 1 1 1 1 1 1 r~ Year 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 Figure 7. Index Values—Annual Average Price Per Pound Paid to Broiler Producers, British Columbia and Washington State (B.C. Index Base 1959-61 = 100. Washington Index Base 1954-56 = 100). Source: Tables 3 and 4 (pp. 69, 70). 90 Table 11. Index Values of Prices Per Pound Paid to B r o i l e r Producers 3 i n B r i t i s h Columbia and Washington State. (1959-61 = 100) Year B r i t i s h Columbia Washington State 1961 100.0 100.0 1962 103.2 96. 7 1963 107.3 96.1 1964 93.2 92.8 1965 123.8 95.6 1966 107.3 99.5 1967 104.4 94.5 1968 106.8 97.8 1969 108.3 101.7 1970 100.5 97.8 1971 106.8 101. 7 1972 110.7 101. 7 1973 149.0 147.0 Source: Derived from Tables 1 and 2 (pp. 66, 67). Liveweight ba s i s . 91 150 -| INDEX Figure 8. Index Values of Annual.Price Per Pound Paid f or B r o i l e r Producers, B r i t i s h Columbia and Washington State (1959-61 = 100). Source: Table 11, (p. 90). 92 i n increasing prices paid to producers, the observed d i f f e r e n c e i n performance of the Board and Commission on producer p r i c e i s l e s s . To measure p r i c e s t a b i l i t y , a weighted average of annual f l u c t u a t i o n s i n prices paid to producers i n B r i t i s h Columbia and Wash- ington was compiled and i s presented i n Table 12. The average annual f l u c t u a t i o n i n Washington from 1957 to 1972 was .9 of a cent per pound, while the average annual f l u c t u a t i o n i n B r i t i s h Columbia from 1962 to 1972 was 2.0 cents per pound.^ We are therefore able to conclude that : p r i c e s are r e l a t i v e l y more stable i n Washington than i n B r i t i s h Columbia. Some of the more i n t e r e s t i n g developments i n the p r i c i n g of b r o i l e r products i n Canada and the United States have occurred over the l a s t year and a h a l f . Table 13 presents the weighted average p r i c e paid to producers by month i n Canada and the United States during 1973. This information i s also presented i n Figure 9. From t h i s i t may be observed that between January and July of 1973, monthly p r i c e s to producers i n Canada averaged 5.5 cents per pound higher than those i n the United States. In August, with the l i f t i n g of Phase II of the U.S. P r i c e and Wage con- t r o l program, the p o s i t i o n was reversed, with United States p r i c e s r i s i n g above those i n Canada by 3.2 cents per pound. In autumn of 1973, following the high p r i c e s received i n August, product surpluses began to develop i n response to increased p r i c e and reduced demand. As may be observed, t h i s r e s u l t e d i n a sharp decline i n p r i c e s paid to producers 1973 p r i c e s have been excluded due to the severe impact of economic conditions external to the b r o i l e r industry. Table 12. Year-tc—Year Changes i n Annual Average P r i c e Per Pound Paid to B r o i l e r Producers 3 B r i t i s h Columbia and Washington State, 1957-1972 Year B r i t i s h Columbia Washington State Change from preceding year i n cents per pound 1957 — -1.0 1958 — -1.3 1959 — -2.1 1960 — +0.5 1961 — -2.5 1962 +3.1 +0.9 1963 +0.8 -0.1 1964 -2.9 -0.6 1965 +6.3 +0.5 1966 -3.4 +0.7 1967 -0.6 -0.9 1968 +0.5 +0.6 1969 +0.3 +0.7 1970 -1.6 -0.7 1971 +1.3 +0.7 1972 +0.8 +0.0 Average annual p r i c e change 1.96 0.86 Source: Derived from Tables 1 and 2 (pp. 66,67). Liveweight ba s i s . 94 Table 13. Monthly Weighted Average P r i c e Per Pound Paid to B r o i l e r Producers, Canada and the United States, 1973 Month Canada United States" 5 c Difference Difference Per Cent cents per l b . liveweight January 23.9 17.2 6.7 28.0 February 25.3 19.4 5.9 23.3 March 28.3 23.3 5.0 17.7 A p r i l 28.3 25.5 2.8 19.9 May 29.6 23.8 5.8 19.6 June 31.2 24.5 6.7 21.5 Ju l y 32.6 26.4 6.2 19.0 August 34.6 37.8 -3.2 - 9.2 September 36.8 30.3 6.5 17. 7 October 36.3 24.3 12.0 33.1 November 34.5 23.4 11.1 32.2 December 33.9 — — — — — Source: Compiled by the A g r i c u l t u r a l Economics Research Council of Canada. a. U.S. Department of A g r i c u l t u r e Poultry and Egg S i t u a t i o n , November 1973. b ° Canada Dept. of A g r i c u l t u r e Poultry Market Report, 1973. 95 Figure 9. Monthly Weighted Average P r i c e s Paid to Producer. Canada and United States, 1973 Source: Table 13 (p. 94). 96 i n the United States, however prices remained at a r e l a t i v e l y high l e v e l i n Canada. The average monthly p r i c e paid to producers i n Canada during the f a l l of 1973 was 9.9 cents per pound higher than i n the United States. This p r i c e d i f f e r e n t i a l was r e f l e c t e d i n B r i t i s h Columbia r e l a t i v e to the Washington market, and has p e r s i s t e d i n t o 1974. The p r i c e per pound received by b r o i l e r producers i n Washington as of June 12, 1974 was 26.5 cents; i n B r i t i s h Columbia producers received 35.5 cents per pound, a p r i c e d i f f e r e n t i a l of 9.0 cents per pound, despite the g existance of a large surplus i n the B r i t i s h Columbia market. wholesale prices i n B r i t i s h Columbia and Washington as of June 12, 1974 were 59 cents per pound and 44 cents per pound r e s p e c t i v e l y . I f processor gross margins are cal c u l a t e d on the basis of cost per pound of meat to the processor (eviscerated weight), the p r i c e d i f f e r e n t i a l i s approximately 2 cents per pound i n favour of the B r i t i s h Columbia processors. I t i s i n the area of r e t a i l p r ices that the widest d i f f e r e n c e s e x i s t between the two markets. The average r e t a i l p r i c e for Grade A whole-bodied f r y e r s i n B r i t i s h Columbia, f o r the week ending June 1, 1974, was 89 to 95 cents per pound f o r fresh product and 87 to 89 cents 9 per pound f o r frozen. Prices i n the Washington market i n the beginning of June were 47 to 49 cents per pound f o r the same product on weekend days The surplus was 4.6 m i l l i o n pounds as of June 1974. 9 Canada Department of A g r i c u l t u r e , Poultry Market Report: Markets Information Section and Poultry D i v i s i o n , Weekly Report #22, Ottawa, Ont., June 7, 1974 (week ending June 1, 1974). 97 and approximately 5 to 10 cents per pound higher during the weekdays."^ Based on the weekday p r i c e s , there i s a d i f f e r e n c e of 30 cents per pound i n r e t a i l p r ices between Washington State and B r i t i s h Columbia. This discrepancy i n r e t a i l p r i c i n g p o l i c y i s also noted between the Vancouver and Montreal markets. Table 14 presents a comparison of the range of producer, wholesale and r e t a i l p r ices i n the Vancouver and Montreal markets f o r the f i r s t h a l f of 19/4. This information i s also presented i n Figure 10. From t h i s i t may be observed that, while the p r i c e ranges at the producer and processor l e v e l are r e l a t i v e l y s i m i l a r , the r e t a i l p r i c i n g behaviour i s sharply contrasted between the two markets. I t may be concluded that the r e t a i l mark-up for b r o i l e r products i s s u b s t a n t i a l l y higher i n the Vancouver market. In summary, pr i c e s to the producers f o r b r o i l e r products have t r a d i t i o n a l l y been higher i n the B r i t i s h Columbia market than i n the Washington market. The p r i c e d i f f e r e n t i a l between the two markets has greatly increased during the l a s t year and a h a l f . Producer pr i c e s . a r e more stable i n Washington than i n B r i t i s h Columbia, however, the i n s t a b i l i t y Personal communication with r e t a i l e r s i n the Washington market. Since these charts r e f l e c t a range of weekly p r i c e s , not an average, the minimum markup was used f o r the purpose of comparison. In attempting to determine the average p r i c e , figures were obtained from the P r i c e s D i v i s i o n of S t a t i s t i c s Canada, Ottawa. These p r i c e s are c o l l e c t e d one week of each month, on Tuesday to Friday i n f i f t e e n V i c t o r i a stores and Wednesday to Friday i n twenty-two Vancouver stores. The weighted average p r i c e s f o r Grade A whole-bodied b r o i l e r s f o r January through A p r i l , 1974 i n the Vancouver market were 88.8, 84.4, 87.8 and 85.9 r e s p e c t i v e l y . These figures suggest that the upper portion of the r e t a i l p r i c e range i s probably a closer r e f l e c t i o n of the r e t a i l mark- ups on b r o i l e r products. 98 Table 14. Producer, Wholesale and R e t a i l P r i c e s and Ranges of P r i c e f o r B r o i l e r s . Vancouver and Montreal January-June 1974. Week Ending Jan 5 12 19 26 Vancouver Montreal Feb Mar 2 9 16 23 2 9 16 23 30 Apr 6 13 20 27 May 4 11 18 25 Jun 1 Producer Wholesale R e t a i l Producer Wholesale R e t a i l 35.5-36.5 60.5-64 35.5 36.5 60.5-63 60-63 60.5-62 I 60-62 t 62.5-65 60.5-65 60-65 62- 65 63- 65 61- 65 62- 64 61-64 60-62 59-61 58-59 cents per l b . 89-95 31.25 69-95 I 75-89 I 69-95 31.75 69-95 I 69-92 32.25 79-99 69-89 89 33 69-89 33.5 79-93 34 89-93 79-89 89-95 33.5 89-93 93-95 69-95 33 93 89-95 89-95 51-53 \ 53-54 55-56 56.57 57-58 \ 60-61 63-64 I 60-61 59-60 59-60 69-73 59-69 69 69-73 73 73-77 77 71-77 65-77 77-79 77-81 I 77-79 Source: Canada Department of A g r i c u l t u r e Poultry Market Report, Weekly Report No. 1-22, 1974. Liveweight bas i s . Figure 1 0 . PRICE cents per pound 100i 90H 80H 70H 60H 5fl 46H 36{ Weekly Prices and Ranges of P r i c e s , R e t a i l , Wholesale, and Producer. Vancouver (A) and Montreal (B) January 1 - June 1, 1974 99 A - VANCOUVER R e t a i l Wholesale Producer 20- ~1 1 I i ' ' I i i I — I — i — i — | — i — | — i — i — i — i — i — i 5 12 19 26 2 9 16 23 29 16 23 306 13 20 27 4 11 18 251 WEEK Jan. Feb. Mar. Apr. May Jun. PRICE 1 0 o i cents per 90- pound 80H 70" 60H 50- 40. 30i 20- B - MONTREAL R e t a i l Wholesale — i — i — i — i — r 5 12 1 9 26 2 Jan. ~i i i i i — i — i — " — i — i — i — i — i — i — r 9 16 23 2 9 16 23 30613 20 274 11 If Feb. Mar. Apr. May n i 25 1 Jun. Producer WEEK 100. i n B r i t i s h Columbia i s due l a r g e l y to producer p r i c e increases as opposed to p r i c e f l u c t u a t i o n s . In B r i t i s h Columbia, p r i c e . t o producers appears to be l e s s responsive to surplus production than i n the Washington market. Pr i c e s have increased at a greater rate i n B r i t i s h Columbia since the establishment of the Board than they have i n Washington since the es- tablishment of the Commission. Processors' mark-ups appear to be s l i g h t l y higher i n B r i t i s h Columbia, although not by a s i g n i f i c a n t amount. R e t a i l mark-ups are s u b s t a n t i a l l y higher i n B r i t i s h Columbia than i n Washington State. (b) Supply Figure 11 presents data on the number of b r o i l e r s produced per year i n B r i t i s h Columbia and Washington f o r the years 1953 to 1973. From t h i s i t may be seen that, p r i o r to 1971, annual Washington b r o i l e r production exceeded that of B r i t i s h Columbia. By contrast, supply has undergone a r e l a t i v e l y steady increase i n B r i t i s h Columbia. H i s t o r i c a l production volumes do not, however, provide us with a convenient means of measuring the e f f e c t of the Board and Commission upon production i n each market. An index of the average production i n each market f o r the three year period p r i o r to the operation of the Board and Commission provides one means of measuring the changes a f t e r t h e i r inception. Figure 12 presents the annual commercial b r o i l e r production i n Washington and B r i t i s h Columbia, with an index base set at one hundred. From t h i s , we are able to observe that i n both markets, production has increased g r e a t l y since the inception of the Board and Commission, how- ever t h i s increase has occurred at a f a s t e r and more stable rate i n the B r i t i s h Columbia market. 101 BIRDS t h o u s a n d s 22000 -| 21000 20000 19000- 18000" 17000- 16000- 15000- 14000- 13000- 12000- 11000- 10000 9000-J 8000" 7000 Year Washington State B r i t i s h Columbia f i 1 1 1 1 1 1 r n i i i i i i 1 1 — i 1 1 r 53 5k 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 Figure 11. Annual B r o i l e r Production B r i t i s h Columbia and Washington State 1953-73 Source: Tables 1 and 2 (pp. 66,67). 102 Figure 12. Index Values for Number of B r o i l e r s Produced B r i t i s h Columbia and Washington State, 1953-1973 103 In 1973, t o t a l b r o i l e r production i n Washington was 17,5 75,000 bir d s and i n B r i t i s h Columbia 18,835,000 b i r d s . In summary, while current production volume f o r B r i t i s h Columbia and Washington i s roughly equivalent, production l e v e l s have been subject to greater f l u c t u a t i o n i n the Washington market. (c) Competition Figures 13 and 14 present an h i s t o r i c a l comparison of annual pr i c e s paid to producers i n B r i t i s h Columbia and Washington r e s p e c t i v e l y as contrasted with the n a t i o n a l average p r i c e paid to producers i n each market. From t h i s i t may be observed that, h i s t o r i c a l l y , p r i c e s i n both the B r i t i s h Columbia and Washington markets have been above the respec- t i v e n a t i o n a l averages. Table 15 presents the average annual p r i c e per pound received by producers i n the Washington and Arkansas market during the years 1963 to 1973. This information i s also displayed i n Figure 15. Since the Arkansas market i s representative of the large b r o i l e r industry located i n the southern part of the United States, i t may be i n f e r r e d from t h i s data that the p r i c e d i f f e r e n t i a l between Washington and n a t i o n a l average p r i c e s i s l a r g e l y a t t r i b u t a b l e to b r o i l e r production i n the southern sta t e s , which hold a comparative advantage over b r o i l e r s produced i n Washington State. Table 16 presents the average annual p r i c e s paid to b r o i l e r pro- ducers i n the Vancouver and Montreal markets during the years 1961 through 1973. This information i s also presented i n Figure 16 for the years 1953- 73. Since p r i c e s i n the Montreal market are representative of p r i c e s paid 104 PRICE cents per pound l i v e - weight Year 60 61 62 63 64 65 66 67 68 69 70 71 72 73 Figure 13. Annual Average P r i c e Paid to B r o i l e r Producers Canada and B r i t i s h Columbia. 1960-1973 Source: Table 1 and Table 10 (pp. 66 and 85). PRICE cents per pound l i v e - weight 28 27 26 25 24 23 22 21 20- 19. 18 17. 16" 15- 105 14' Washington State United States Year i i i 1 r 60 61 62 63 64 I 1 1 1 r 65 66 67 68 69 ~~i 1 1 r 70 71 72 73 Figure 14. Annual Average P r i c e Paid to B r o i l e r Producers United States and Washington State. 1960-1973 Source: Table 2 and 10 (pp. 67 and 85). 106 . Table 15.• Annual Average P r i c e Per Pound Paid to B r o i l e r Producers Washington State and Arkansas. 1963-1973 Year Washington Arkansas Difference Difference State Per Cent Cents per l b . liveweight 1963 17.4 13.9 3.5 20.1 1964 16.8 13.4 3.5 20.2 1965 17.3 14.0 3.3 19.1 1966 18.0 14.7 3.3 18.3 1967 17.1 12.6 4.5 26.3 1968 17.7 13.6 4.1 23.2 1969 18.4 15.0 3.4 18.5 1970 17.7 13.2 4.5 25.4 1971 18.4 13.3 5.1 27. 7 1972 18.4 13.7 4.7 25.5 1973 26.6 23.7 2.9 10.9 Source: U.S. Department of A g r i c u l t u r e , Chicken and Eggs, Pou 2-3 63-73). Figure 15. Annual Average P r i c e Paid to B r o i l e r Producer Washington State and Arkansas. 1963-1973 Source: Table 15 (p. 106). 108 Table 16. Annual Average P r i c e Per Pound Paid to B r o i l e r Producers Vancouver and Montreal. 1961-1973 Year Vancouver Montreal Difference Difference Per cent Cents per l b . liveweight 1961 18.2 17.3 0.9 4.9 1962 21.3 19.8 1.5 7.0 1963 22.1 20.1 2.0 9.1 1964 19.2 18.5 0.7 4.1 1965 25.5 27.0 -1.5 - 5.9 1966 21.1 21.2 -0.1 .5 1967 21.5 19.0 2.5 11.6 1968 22.0 19.8 2.2 10.0 1969 22.3 18.6 3.7 16.6 1970 20.7 17.2 3.5 16.9 1971 22.0 18.3 3.7 16.8 1972 22.8 21.3 1.5 6.6 1973 30.7 29.4 1.3 4.2 Source: Table 1 (p. 66). 109 Figure 16. Annual Average P r i c e Paid to B r o i l e r Producers Vancouver and Montreal. 1953-1973 Source: Table 1 (p. 66). 110 producers i n the b r o i l e r industry i n eastern Canada, i t may be i n f e r r e d that the higher l e v e l of producer p r i c e s i n B r i t i s h Columbia r e l a t i v e to the n a t i o n a l average r e f l e c t s the influence of Quebec and Ontario, which hold a comparative advantage over b r o i l e r production i n B r i t i s h Columbia. In Washington, the comparative advantage of Arkansas b r o i l e r production i s s u f f i c i e n t to o f f s e t transportation costs, and Arkansas' product competes with domestic product i n the Washington market. Table 17 presents the average annual wholesale p r i c e s f o r the Montreal and Vancouver markets during the years 1965 to 1973. This information i s also presented i n Figure 17. From t h i s i t may be observed that the average wholesale p r i c e i n Vancouver has been consis- t e n t l y higher than that i n Montreal. In B r i t i s h Columbia, due to regula- tions imposed by the Board r e s t r i c t i n g the entrance of any imported product, p r i c e d i f f e r e n t i a l s i n the Quebec market have not been allowed 12 to a f f e c t B r i t i s h Columbia's production. In summary, pr i c e s paid to b r o i l e r producers i n both the B r i t i s h Columbia and Washington State market are higher than the n a t i o n a l aver- age. This i n d i c a t e s comparative advantages of production e x i s t i n g i n other regions of the respective n a t i o n a l markets. In both instances, the comparative advantage of production e x i s t i n g i n other regions has Based on 1973 average wholesale p r i c e s i n each market, the landed wholesale p r i c e f o r Quebec b r o i l e r s i n B r i t i s h Columbia would be 57.2 cents per pound versus 60 cents per pound for domestically pro- duced product. (Based on r a i l transportation costs of 3.6c/lb from Montreal to Vancouver). I l l Table 17. Annual Average Wholesale B r o i l e r P r i c e Per Pound Vancouver and Montreal. 1965-1973 Year Vancouver Montreal Difference Difference Per Cent Cents per l b . liveweight 1965 37.4 37.8 - 0.4 - 1.1 1966 40.0 35.0 5.0 12.5 1967 38.4 32.6 5.8 14.4 1968 41.2 34.4 6.8 16.5 1969 43.3 32.6 10.7 24.9 1970 39.2 30.2 4.0 23.0 1971 41.9 33.4 8.5 20.3 1972 43.9 38.9 5.0 11.4 1973 60.0 53.6 6.4 10.7 Source: Table 1 (p. 66). 112 Year 65 66 67 68 69 70 71 72 73 Figure 17. Annual Average Wholesale Pr i c e s Vancouver and Montreal 1965-1973 Source: Table 1 (p. 66). 113 been s u f f i c i e n t to o f f s e t transportation costs to the domestic markets. In the Washington market, product movement has occurred, and b r o i l e r s from the southern states compete with domestic production. In B r i t i s h Columbia, competing product does not enter the domestic market from regions of greater comparative advantage. Since the B.C. B r o i l e r Market- ing Board has the authority to r e s t r i c t the i n t e r p r o v i n c i a l or i n t e r - n a t i o n a l movement of competing product by preventing the sa l e of imported products on the domestic market, competition from areas of greater com- parative advantage has been eliminated. Channels of D i s t r i b u t i o n Relationships with Processors and R e t a i l e r s In June of 1974, opinions were s o l i c i t e d from persons i n the b r o i l e r industry i n B r i t i s h Columbia and Washington regarding the i n t e r - r e l a t i o n s h i p s between the sectors. From these i t was observed that the B r i t i s h Columbia B r o i l e r Marketing Board has not been as e f f e c t i v e i n f a c i l i t a t i n g productive communication between the industry sectors as has the Washington Fryer Commission. Based on opinions s o l i c i t e d from representative persons i n the processing and r e t a i l segments of the B r i t i s h Columbia market, the general f e e l i n g towards the Board i s one of d i s s a t i s f a c t i o n . Those p a r t i e s con- tacted stated that they f e l t the Board was unresponsive to t h e i r needs, and generally u n w i l l i n g to consider t h e i r opinions regarding the market- ing of b r o i l e r products. 114 From d i s c u s s i o n s w i t h persons i n v o l v e d i n the b r o i l e r i n d u s t r y i n Washington S t a t e , i t has been observed that both the processors and the r e t a i l e r s are considered to be a v i t a l p a r t of the marketing chain by the Washington F r y e r Commission. Through the e f f o r t s of the Commission, a great d e a l of communication and cooperation has evolved between the p r o c e s s o r s , producers and r e t a i l e r s of b r o i l e r products. The opinions of the processors and r e t a i l e r s are s o l i c i t e d by the Commission, and c o n t r i b u t e s i g n i f i c a n t l y to the development of programs designed to i n c r e a s e market e f f i c i e n c y . A l l of the processors and r e t a i l e r s contacted i n the Washington market s t a t e d that the Commission had c o n t r i b u t e d s i g - n i f i c a n t l y to o v e r a l l market e f f i c i e n c y . Market Expansion (a) A d v e r t i s i n g and Promotion In 1973, the Washington F r y e r Commission expended $91,414 on a d v e r t i s i n g and promotion, r e p r e s e n t i n g approximately seventy-nine per cent of t h e i r o p e r a t i n g budget, w h i l e the B.C. B r o i l e r Marketing Board spend $36,788 on a d v e r t i s i n g and promotion c o n s t i t u t i n g approximately t w e n t y - f i v e per cent of t h e i r o p e r a t i n g budget d u r i n g the same p e r i o d of time. While both the B.C. B r o i l e r Marketing Board and the Washington F r y e r Commission have conducted a d v e r t i s i n g and promotional programs, As reported i n the Washington Fryer Commission Annual Report 1973 and the B.C. B r o i l e r Marketing Board Annual Report 19 73, respec- t i v e l y . 115 the e f f o r t s undertaken i n t h i s area appear to have been greater on the part of the Washington Fryer Commission. (b) Research In 1973, the B.C. B r o i l e r Marketing Board commissioned a market research study to determine the p o t e n t i a l market for further processed 1 4 b r o i l e r products i n B r i t i s h Columbia. The Washington Fryer Commission has embarked upon sev e r a l areas of research since t h e i r i n c e p t i o n . These include: research i n the area of transportation of feed grains, seeking to obtain lower and more equitable r a i l f r e i g h t rates. Through t h e i r cooperation with the Western States Feedstuffs Transportation Committee, they s u c c e s s f u l l y obtained f r e i g h t reductions f o r s e v e r a l feed grains used i n b r o i l e r production i n v e s t i g a t i o n of barley and kelp as components of feed rations for b r o i l e r s two studies to determine consumption patterns f o r b r o i l e r s i n Washington State the award of research scholarships to two u n i v e r s i t i e s i n Washington State to promote the study of b r o i l e r production and marketing W. Dixon, Analysis of The P o t e n t i a l Market for Further Pro- cessed B.C. B r o i l e r Products. 116 While the area of research has received a t t e n t i o n from both the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission, i t may be observed that the commission has placed a greater emphasis on research than has the Board. Analysis of Factors Contributing to Observed Differences i n Performance Table 18 presents a summary of the observed dif f e r e n c e s between the b r o i l e r i n d u s t r i e s i n B r i t i s h Columbia and Washington, with respect to st r u c t u r e , returns to growers, p r i c e , supply, competition, r e l a t i o n - ship to industry sectors, a d v e r t i s i n g and promotion and research. When studying two i n d u s t r i e s which have i n common production volume, s i z e and geographical l o c a t i o n , the diff e r e n c e s observed r a i s e fundamental questions. I t would appear v a l i d to assume that the B r i t i s h Columbia B r o i l e r Marketing Board i s able to exert a greater degree of c o n t r o l i n the- marketplace than i s the Washington Fryer Commission. By reviewing the elements of c o n t r o l held by each group, and the e f f e c t s of the a p p l i c a - t i o n of that c o n t r o l , a b e t t e r understanding of the reasons behind the observed v a r i a t i o n s i n performance may be approached. Powers In B r i t i s h Columbia, the B.C. B r o i l e r Marketing Board has powers which e f f e c t i v e l y regulate production (volume, number of producers, and maximum producer s i z e ) , e s t a b l i s h p r i c e s to producers, and r e s t r i c t imported product. 117 Table 18. Summary of Differences Observed i n the B r i t i s h Columbia and Washington State B r o i l e r Markets B r i t i s h Columbia Washington Structures of Production Returns to Producers 1974 estimated returns to manage- ment and c a p i t a l f o r 40,000 b i r d / cycle u n i t P r i c e l e v e l s margins producer Supply Competition Relation to other industry sectors A d v e r t i s i n g and promotion Research concept of family farm emphasis on v e r t i c a l i n t e g r a t i o n higher $42,700 higher at a l l l e v e l s higher at a l l l e v e l s greater rate of i n - crease p r i c e l e s s responsive to surplus supply greater s t a b i l i t y no poor l e s s i n t e n s i v e le s s i n t e n s i v e lower $17,270 lower at a l l l e v e l s lower at a l l l e v e l s lower rate of increase greater s t a b i l i t y p r i c e more responsive to surplus supply le s s s t a b i l i t y yes good more in t e n s i v e more in t e n s i v e 118 The. a u t h o r i t i e s vested i n the Washington Fryer Commission are those of a d v e r t i s i n g and promotion, improvement of standards and grades, prevention of u n f a i r trade p r a c t i e s , and the support of research. In conjunction with the improvement of standards and grades, the Commission has i n s t i t u t e d state of o r i g i n l a b e l l i n g f o r a l l b r o i l e r products s o l d i n Washington. Label enforcement, combined with prevention of u n f a i r trade p r a c t i c e s , are the strongest regulatory powers the Commission holds. The powers of the B.C. B r o i l e r Marketing Board are f a r greater than those of the Washington Fryer Commission. The following i s an evaluation of how the differences i n power held by each i n s t i t u t i o n has contributed to the d i f f e r e n c e i n performance observed i n the c r i t e r i a under question. E f f e c t s on Structures of Production In B r i t i s h Columbia, the B.C. B r o i l e r Marketing Board has the a b i l i t y to c o n t r o l both s i z e and number of producing u n i t s through the use of quota. By s t i p u l a t i n g that no quota may be issued or transferred to any grower who has received c a p i t a l f i n ancing from any other part of the b r o i l e r industry or a f f i l i a t e d trades, as w e l l as p r o h i b i t i n g a grower from being employed or owning shares i n any hatching, processing, or feeding business, they have e f f e c t i v e l y prevented v e r t i c a l i n t e g r a t i o n from occurring i n B r i t i s h C o l u m b i a . D u e to the enforcement of these regulations, i t i s not s u r p r i s i n g to f i n d an industry i n B r i t i s h Columbia The notable exceptions include Panco Poultry Ltd., White Spot Ltd., and P a c i f i c Poultry Cooperative, the l a t t e r a p r o v i n c i a l l y sponsored v e r t i c a l l y integrated grower cooperative. 119 c o n s i s t i n g of a serie s of family farms. In Washington, the Washington Fryer Commission does not have the authority to c o n t r o l production s i z e , number of growers, or degree of i n t e g r a t i o n . Due to the lower returns i n the b r o i l e r industry i n . Washington, increased demands f o r e f f i c i e n c y have lead to the develop- ment of larger u n i t s , and v e r t i c a l l y integrated approaches to production have evolved as a means of promoting e f f i c i e n c y . E f f e c t s on Returns to Producers Since net returns to producers may be expressed as liveweight p r i c e times quantity of output le s s cost of production, and since cost of production and quantity of output are r e l a t i v e l y s t a b l e , net return to producers i n the b r o i l e r industry i s l a r g e l y dependent upon p r i c e . In B r i t i s h Columbia, the B.C. B r o i l e r Marketing Board establishes liveweight p r i c e s to producers. Since the Board i s comprised s o l e l y of di r e c t o r s e l e c t e d by the growers, t h e i r i n t e r e s t l i e s With maximizing producer returns. Due to the lack of competition i n the B r i t i s h Columbia market, the Board established p r i c e has t r a d i t i o n a l l y been higher than i n Washington. Consequently, returns to growers i n B r i t i s h Columbia are s i g n i f i c a n t l y higher than those i n Washington. In Washington, the Washington Fryer Commission has no c o n t r o l over p r i c e s paid to producers. Due to competition i n the Washington market from b r o i l e r s produced i n the southern s t a t e s , liveweight p r i c e s to producers are also competitive, and therefore lower than i n B r i t i s h Columbia. .This r e s u l t s i n lower net returns to Washington B r o i l e r pro- ducers . 120 E f f e c t s on P r i c e In B r i t i s h Columbia, since the production liveweight p r i c e paid to producers i s established by the B.C. B r o i l e r Marketing Board and r e s t r i c t i o n s placed on competition, p r i c e s at the r e t a i l l e v e l are correspondingly higher. We may also observe that producer prices have increased at a f a s t e r rate i n B r i t i s h Columbia, again due to the co n t r o l of p r i c e , supply, and competition by the Board. In Washington, due to the existence of competition i n the market, as w e l l as the lack of c o n t r o l over p r i c e s by the Washington Fryer Commission, p r i c e s f or b r o i l e r products at the producer, processor, and r e t a i l l e v e l are correspondingly lower. E f f e c t s on Supply In B r i t i s h Columbia, since the B.C. B r o i l e r Marketing Board establishes p r i c e s and regulates supply, through the use of quota, to maintain p r i c e s , supply has h i s t o r i c a l l y undergone a more stable growth. In Washington, since the Washington Fryer Commission does not have the a b i l i t y to in f l u e n c e p r i c e or supply, supply has been l e s s stable than i n B r i t i s h Columbia. E f f e c t s on Competition In B r i t i s h Columbia, the B.C. B r o i l e r Marketing Board has the a b i l i t y to r e s t r i c t the entrance of any competing product through en- forcement of Import Order No. 1. Since the i n s t i t u t i o n of t h i s Order i n 1970, competition has been e f f e c t i v e l y eliminated i n the B r i t i s h Columbia market. 121 In Washington, since the Washington Fryer Commission does not have the a b i l i t y to r e s t r i c t competition, the competing product flows f r e e l y i n t o the market from areas of greater comparative advantage. E f f e c t s on Relationship with Processors and R e t a i l e r s In B r i t i s h Columbia, since the B.C. B r o i l e r Marketing Board has been given the power to e s t a b l i s h producer p r i c e , maintain high p r i c e l e v e l s through supply c o n t r o l , and eliminate competition, producers enjoy a secure market and high returns. Consequently, the necessity f o r productive r e l a t i o n s h i p s with processors and r e t a i l e r s has been l a r g e l y eliminated. I t i s not s u r p r i s i n g , therefore, to f i n d that the Board has not expended a great deal of e f f o r t i n t h i s area. In Washington, since the Washington Fryer Commission i s without the powers enjoyed by the B.C. B r o i l e r Marketing Board, the establishment of productive r e l a t i o n s h i p s with processors and r e t a i l e r s i s of v i t a l importance i n improving the market environment f o r domestically produced product. A great deal of e f f o r t has been expended i n t h i s d i r e c t i o n by the Commission. E f f e c t s on A d v e r t i s i n g and Promotion In B r i t i s h Columbia, the B.C. B r o i l e r Marketing Board has e f f e c t i v e l y reduced the threat of competition. Since the growers i n B r i t i s h Columbia supply close to one hundred per cent of t h e i r market, and since supply i s regulated to conform to demand at Board established p r i c e s , the emphasis on a d v e r t i s i n g and promotion i s understandably les s than i n the Washington market. 122 In Washington, since the Washington Fryer Commission does not enjoy the powers held by the B.C. B r o i l e r Marketing Board, the need f o r e f f e c t i v e and int e n s i v e a d v e r t i s i n g and promotion i s v i t a l . As of 1974, Washington supplies approximately f o r t y - f i v e per cent of the domestic market. Since r e t a i l p r ices f o r Washington B r o i l e r s are approximately f i v e cents per pound greater than those of competing southern product, a great deal of the Commission's a c t i v i t y has s u c c e s s f u l l y been expended i n the area of a d v e r t i s i n g and promotion. E f f e c t s on Research In B r i t i s h Columbia, due to the regulatory powers held by the B.C. B r o i l e r Marketing Board, the need f o r research i n the areas of improved production methodology and market research and development to improve producer market power has not been as pressing as i n Washington State. Correspondingly, there i s s i g n i f i c a n t l y l e s s emphasis placed i n t h i s area by the Board. In Washington, since producers face a competitive market, the need f o r research i n the areas of improved production methodology and market research and development has been f a r greater than i n B.C. The Washington Fryer Commission has, appropriately, expended a greater e f f o r t i n t h i s area. CHAPTER VI EVALUATION OF PERFORMANCE Introduction An evaluation of market performance implies the existence of c r i t e r i a against which observed performance may be assessed. The c r i t e r i a which have been observed i n t h i s study ares structures of production returns to producers p r i c e supply competition r e l a t i o n s h i p s with processors and r e t a i l e r s a d v e r t i s i n g and promotion research An evaluation of performance based on these c r i t e r i a w i l l be undertaken with respect to Stated Objectives, Industry Sectors, and the Concept of Organized Marketing. With Respect to Stated Objectives Both the B r i t i s h Columbia B r o i l e r Marketing Board and the Wash- ington Fryer Commission have been established under governmental authority to e f f e c t s p e c i f i c functions i n r e l a t i o n to the marketing of b r o i l e r s . 123 124 If we assume that these functions represent a subset of the objectives of organized marketing, the f i r s t basis upon which to evaluate the performance of the two i n s t i t u t i o n s i s with respect to the successful attainment of the objectives expressed i n the l e g i s l a t i o n under which they function. The objectives of the B.C. B r o i l e r Marketing Board, as stated i n t h e i r Scheme, are:""" . . . to promote, c o n t r o l , and regulate the . . . marketing of B r i t i s h Columbia b r o i l e r chickens . . . As i s evidenced by the information reported under performance, the B.C. B r o i l e r Marketing Board, through the regulation of production volume, maximum producer s i z e , number of producers wi t h i n the industry, and r e s t r i c t i o n on imported product, has s u c c e s s f u l l y attained t h e i r objec- t i v e of c o n t r o l l i n g and regulating the marketing of B r i t i s h Columbia b r o i l e r chickens. While the Board spends s i g n i f i c a n t l y l e s s of i t s t o t a l budget 2 on a d v e r t i s i n g than does the Washington Fryer Commission (twenty-five per cent as compared with seventy-nine per cent r e s p e c t i v e l y f o r 1973), the need to maintain and increase the domestic market i s not as c r i t i c a l from the point of view of the growers, since the Board e f f e c t i v e l y removes competition from outside of B r i t i s h Columbia and supports l o c a l p r i c e . ^ B r i t i s h Columbia B r o i l e r Marketing Scheme, BC Reg. 188/61. 2 B r i t i s h Columbia B r o i l e r Marketing Board, Annual Report, 1973. Washington Fryer Commission, Annual Report, 1973. 125 The objectives set f o r t h i n the Marketing Order for B r o i l e r s , Fryers and Roasters, as issued by the D i r e c t o r of A g r i c u l t u r e of 3 Washington State are: to promote the general welfare of the state by enabling f r y e r , b r o i l e r , and roaster producers to help themselves i n e s t a b l i s h i n g or d e r l y , f a i r , sound, e f f i c i e n t , and unhampered marketing, grad- i n g , and standardization of f r y e r s , b r o i l e r s , and roasters they produce, and i n promoting and i n c r e a s i n g the sale of such f r y e r s , b r o i l e r s , and roasters. On the basis of the information c o l l e c t e d i n t h i s study, the r e s u l t s of the a c t i v i t i e s of the Washington Fryer Commission also appear to be c l o s e l y aligned with t h e i r o bjectives. Washington f r y e r producers now serve approximately f o r t y - f i v e per cent of the domestic market, despite p r i c e differences e x i s t i n g between domestic and imported product. This may be a t t r i b u t e d to the i n t e n s i v e promotional e f f o r t s of the Washington Fryer Commission, t h e i r a c t i v i t i e s i n the area of l a b e l l i n g and l a b e l l i n g enforcement, t h e i r improvement of standardization and grades, and monitor ing of u n f a i r trade p r a c t i c e s , as w e l l as the o v e r a l l e f f i c i e n c y which has occurred i n the b r o i l e r industry i n Washington State, a l l of which have contributed to lowering t h e i r cost of production and enabling them to maintain a competitive p o s i t i o n with respect to southern product. Ac t i v e p a r t i c i p a t i o n from a l l sectors of the industry has been sought and obtained through the a c t i v i t i e s of the Commission. This has r e s u l t e d i n a greater s p i r i t of cooperation and mutual understanding Marketing Order for Washington B r o i l e r s , Fryers and Roasters. 126 between the sectors, and has increased the e f f i c i e n c y of the marketing process. In summary i t may be concluded that both the Washington Fryer Commission and the B.C. B r o i l e r Marketing Board have s u c c e s s f u l l y attained t h e i r stated objectives. With Respect to Industry Sectors I t has been observed that the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission have been s u c c e s s f u l i n a t t a i n i n g the objectives set f o r t h i n the respective l e g i s l a t i o n under which they operate. This alone does not imply, however, that the functions of the Board and Commission have contributed to improving o v e r a l l market per- formance. The e f f e c t of the attainment of these objectives on the market environment provides a measure of market performance. By examining the e f f e c t s of the market environment on producers, processors, r e t a i l e r s and consumers i n B r i t i s h Columbia and Washington r e s p e c t i v e l y , a com- parison of the impact on the industry as a whole may be observed. Producers Washington The Washington producers are faced with lower liveweight p r i c e s and therefore lower incomes than those enjoyed i n B r i t i s h Columbia f o r the same size d u n i t s . Due to the vigorous competition i n the Washington market from product produced i n the southern United States, there i s le s s s e c u r i t y f o r any i n d i v i d u a l producer. While Washington producers 127 are free to expand, lower returns to producers—coupled with increasing b u i l d i n g c o s t s — l i m i t s i n d i v i d u a l expansion. Operating on a contract to a large processor also decreases the freedom of the i n d i v i d u a l pro- ducer to a c e r t a i n extent. Producers i n Washington b e n e f i t from increased e f f i c i e n c y i n the area of production and marketing. Because of the emphasis on e f f i c i e n c y , a producer with above average management expertise can increase the l e v e l of h i s returns through h i s own actions. Since b a r r i e r s to entry and e x i t do not e x i s t to the extent that they do i n B r i t i s h Columbia, producers have greater freedom of movement. B r i t i s h Columbia In B r i t i s h Columbia, a highly motivated grower does not have the opportunity to increase h i s o v e r a l l production and thereby to e f f e c t e f f i c i e n c y increases and yet higher income. Since the system does not provide f o r the n a t u r a l a t t r i t i o n of i n e f f i c i e n t producers, they tend to increase industry cost of production. Producers who entered the industry a f t e r the i n i t i a l a l l o c a t i o n of quota must include the cost of quota as a c a p i t a l investment. For a 40,000 b i r d / c y c l e u n i t , this increases c a p i t a l requirements by approxi- mately eighty per cent, thereby i n c r e a s i n g cost of production. Since the Board controls quota on the basis of estimated demand, which w i l l n e c e s s a r i l y deviate from a c t u a l demand, the B r i t i s h Columbia producer i s faced with f l u c t u a t i n g quota l e v e l s (production) due to the e f f o r t s of the Board to maintain p r i c e . This creates i n e f f i c i e n c i e s i n scheduling f o r 128 the producers and processors a l i k e . Further, i f a b r o i l e r grower i n B r i t i s h Columbia wishes to leave the producing sector, he i s faced with the necessity of complete r e l o c a t i o n i n order to r e a l i z e h i s quota investment. The producers i n B r i t i s h Columbia b e n e f i t from much higher returns than the Washington producers, and are afforded a greater degree of s e c u r i t y . While maximum p r o f i t s from quota a l l o c a t i o n accrued to those who i n i t i a l l y received them, a l l holders of quota have, i n e f f e c t , been given an income producing asset, f o r as the poultry industry i n - creases i s value, so does the r i g h t to produce ( i . e . , quota). Processors Washington The processors i n Washington are faced with greater v a r i a t i o n s i n volume (and therefore i n r e t u r n s ) , than those i n B r i t i s h Columbia. They have, however, an increased a b i l i t y to influence the supply and p r i c e of t h e i r inputs, since the majority are dealing with the growers on a contract b a s i s . This also permits them to c o n t r o l the uniformity of t h e i r inputs, thereby decreasing costs. While p r o f i t margins i n the b r o i l e r industry are, on the average, lower i n Washington, the processors have the option of v e r t i c a l l y i n t e g r a t i n g to capture more of these mar- gins. Because they are not faced with an industry which exercises c o n t r o l of quantity and p r i c e , they have an increased a b i l i t y to p r e d i c t supply on the basis of economic c r i t e r i a and therefore to respond f a s t e r . Since the Washington Fryer Commission i s responsive to the needs of producers, 129 and considers them to be a part of the marketing chain, they are able to exert greater influence on the market environment. B r i t i s h Columbia Since the processors i n B r i t i s h Columbia are faced with a b r o i l e r industry which places controls on quantity and p r i c e , they are i n a weaker p o s i t i o n than t h e i r Washington counterparts to p r e d i c t supply on the basis of economic f a c t o r s . Since t h e i r short run supply v a r i a t i o n s are determined by Board actions, t h e i r scheduling c a p a b i l i t i e s are decreased. Because, as a group, they do not have the option of s e l e c t i n g t h e i r s u ppliers (e.g., those growers who produce high q u a l i t y b i r d s ) , they are faced with a higher v a r i a t i o n i n q u a l i t y and increased costs. Unlike Washington processors, they cannot exert any great amount of influence on supply or the p r i c e of t h e i r inputs ( b i r d s ) . Under con- d i t i o n s such as those being experienced c u r r e n t l y , where suplus volumes are high, the processors must bear the costs of storage for the surplus. While there i s an advisory committee of processors which meets monthly with the Board, the B.C. B r o i l e r Marketing Board has been r e l a t i v e l y un- responsive to t h i s committee, thereby decreasing the processor's a b i l i t y to influence the market environment. R e t a i l e r s Washington R e t a i l e r s i n Washington have the advantage of two sources of supply. They are, therefore, able to b e n e f i t from more competitive p r i c e s , 130 and a form of product which i s more c l o s e l y aligned with consumer demand. This s i t u a t i o n increases sales p o t e n t i a l f o r the r e t a i l e r . The r e t a i l e r s have be n e f i t t e d from the promotional a c t i v i t i e s undertaken by the Washington Fryer Commission. Despite a p r i c e d i f f e r - e n t i a l of from three to f i v e cents a pound between the Washington and Arkansas grown fr y e r s i n the Washington market, e f f e c t i v e promotion permits the Washington producers to supply approximately f o r t y - f i v e per cent of the market. The Commission makes free a d v e r t i s i n g a v a i l a b l e to the r e t a i l e r s , and s o l i c i t s t h e i r opinion i n a d v e r t i s i n g schemes developed. The r e t a i l e r s have e f f e c t i v e channels of communication with the Commission, which i s generally responsive to t h e i r needs. B r i t i s h Columbia In B r i t i s h Columbia, r e t a i l e r s do not have the advantage of competing product. They are of f e r e d one source of supply—domestic. The r i g h t of the r e t a i l e r to seek a l t e r n a t e s u p p l i e r s , and to purchase product from whomever they wish, had been e f f e c t i v e l y l i m i t e d to domestic suppliers through regulations passed by the Board. Consumers Washington In Washington, the consumer benefits from lower p r i c e s due to increased e f f i c i e n c i e s and decreased costs of production. R e t a i l costs are c l o s e l y aligned with input costs, and p r i c e r e f l e c t s any surplus production. Because of the competition from Arkansas, the consumer 131 ben e f i t s from the comparative advantages of Southern production, and the corresponding pressure of e f f i c i e n c y on domestic production. B r i t i s h Columbia In B r i t i s h Columbia, since the B.C. B r o i l e r Marketing Board ; r e s t r i c t s the r i g h t to produce, and maintains high p r i c e s to producers through supply c o n t r o l and the el i m i n a t i o n of competition, the consumer i s placed i n the p o s i t i o n of s u b s i d i z i n g t h i s s i t u a t i o n through increased pr i c e s on the r e t a i l l e v e l . With Respect to the Concept of Organized Marketing I t has been concluded that the performance of the B.C. B r o i l e r Marketing Board and the Washington State Fryer Commission has c o r r e c t l y r e f l e c t e d the objectives set f o r t h i n the B.C. B r o i l e r Marketing Scheme and the Marketing Order f o r B r o i l e r s , Fryers and Roasters r e s p e c t i v e l y . I t has been observed, however, that the market environment i n B r i t i s h Columbia has had serious negative e f f e c t s upon the industry as a whole. As was o r i g i n a l l y stated, to achieve many of the goals of organized marketing, a degree of co n t r o l over i n d i v i d u a l producer behaviour i s required. I t has been observed that the powers of c o n t r o l held by the B.C. B r o i l e r Marketing Board are f a r greater than those held by the Commission. I f the stated objectives are viewed as a subset of the objectives of organized marketing, and the powers granted under each as a means towards achieving those obj e c t i v e s , we may evaluate the degree to which the powers held by the Board and Commission have contributed to 132 the s u c c e s s f u l attainment of the concepts of organized marketing. This w i l l be accomplished by contrasting the e f f e c t s of. the two market s t r u c - tures upon production, response to market conditions, channels of communi- cation, and market expansion. Production In Washington State, the emphasis on e f f i c i e n c y i n b r o i l e r production i s greater than that i n B r i t i s h Columbia. Since there are no l i m i t a t i o n s placed on i n d i v i d u a l grower s i z e , l a r g e r u n i t s , based on the concept of v e r t i c a l i n t e g r a t i o n , have evolved. Most of the b r o i l e r growers i n Washington are producing on a contract b a s i s . Since returns to producers on contract are based on feed conversion r a t i o s , the incen- t i v e f o r e f f i c i e n c y i s greatly increased. Improved production methodology i s sought to decrease costs of production, thereby i n c r e a s i n g grower returns. The powers of the Commission are supportive to both the pro- ducers and the concept of market e f f i c i e n c y . In B r i t i s h Columbia, the powers of the B.C. B r o i l e r Marketing Board, p r i m a r i l y r e s t r i c t i v e i n nature, have l e d to i n e f f i c i e n c i e s i n production. The power to regulate p r i c e and production has l e d to a s t a t i c industry wherein marginal producers are i n s u l a t e d , costs of pro- duction are increased, e f f i c i e n c y i s decreased, normal economic response to p r i c e and supply i s eliminated and valuable resources are misallocated. Through the use of quota (the r i g h t to produce), entry and e x i t b a r r i e r s have been created. Entry i s based on quota a v a i l a b i l i t y , and quota a v a i l a b i l i t y i s regulated by the Board. Although the Board has a 133 program for introducing approximately f i f t e e n new growers per year, there i s a waiting l i s t of 400 applicants. While a p o t e n t i a l new grower has the option of buying an e x i s t i n g farm, the r e l a t i v e l y large p r o f i t s accrued to B r i t i s h Columbia growers through p r i c e and volume controls tend to increase the s t a b i l i t y of the grower population, thereby reducing the number of farms on the market. When farms are a v a i l a b l e f o r purchase by the new'grower, included i n the cost of the farm i s $3.75 per b i r d quota costs. For a u n i t of 40,000 b i r d s per c y c l e , t h i s represents an a d d i t i o n a l investment of $150,000, a s i g n i f i c a n t deterrent to entry. The s t i p u l a t i o n by the Board that quota be t i e d to the land again r e s t r i c t s entry, since the new entrant may be forced to purchase land and b u i l d i n g s which are not of h i s choosing simply to obtain the r i g h t to produce. This also places grographical r e s t r i c t i o n s on production. Persons located i n areas where there are no e x i s t i n g units f o r sale are often faced with the a d d i t i o n a l hardship of r e l o c a t i o n i f they wish to enter the industry. The Board's regulations regarding grower financing and maximum quota holdings also pose a b a r r i e r to entry. B a r r i e r s to e x i t are created as a r e s u l t of quota regulations as w e l l . Since quota i s t i e d to the land, f o r a producer to r e a l i z e h i s quota v a l u a t i o n he must s e l l to a new b r o i l e r grower when e x i t i n g from the sector. This reduces the market f o r h i s property, since i t i s now r e s t r i c t e d to new or small e x i s t i n g growers, and the valuation on h i s land and b u i l d i n g s i s based on valuation i n the poultry sector. The economic health of the sector w i l l determine the worth of h i s property. This has the a d d i t i o n a l e f f e c t of r e s t r i c t i n g the movement of economic resources. 134 The valuation placed on quota not only stands as a b a r r i e r to entry and e x i t but also increases production costs. Since the quota va l u a t i o n i s included i n c a p i t a l investment f i g u r e s , higher costs of production r e s u l t — t h e r e b y increasing costs per unit and decreasing 4 e f f i c i e n c y . I f the grower who holds quota was a l l o t t e d i t under the i n i t i a l quota d i s t r i b u t i o n ( i . e . , before i t attained monetary value), then the quota holder has, i n e f f e c t , received a large unearned p r o f i t , at the expense of the r e s t of the industry as w e l l as the consumer. The Federal Task Force on A g r i c u l t u r e describes the disadvantages of quota as f o l l o w s : 5 Economically, the r i s e i n the p r i c e of quotas or inputs to which the r i g h t s are attached lead to more intense abuse of other i n - puts, r e s u l t i n g i n increasing costs . . . from the n a t i o n a l point of view, resources are a l l o c a t e d i n e f f i c i e n t l y . From the point of view of an owner of . . . (quota) . . . r i g h t s the program probably has the . . . r e s u l t of providing him with a tax free c a p i t a l gain. Another i n t e r e s t i n g s i t u a t i o n brought about by the use of quota i s p o t e n t i a l l y i n e f f i c i e n t use of human resources. I f a person i s an i n e f f i c i e n t producer, t h i s implies that t r a n s f e r of that person to another sector w i l l b e t t e r serve the i n t e r e s t s of s o c i e t y by increasing the A holder of a 40,000 b i r d per cycle quota has an increased c a p i t a l investment of $150,000, representing an eighty per cent increase i n c a p i t a l requirement. Returns on t h i s c a p i t a l at s i x per cent per annum represent $9,000 per year, or an increase i n the cost of produc- t i o n of 4.8 cents per b i r d . 5 Canadian A g r i c u l t u r e i n the Seventies, Ottawa, Queen's P r i n t e r f o r Canada, 1970, p. 316. 135 returns to human resources. I f t h i s transfer i s r e s t r i c t e d , i t represents a high s o c i a l cost. I f the e f f i c i e n t person i s driven out of the industry due to a r t i f i c i a l r e s t r i c t i o n s on growth, t h i s also represents a high s o c i a l cost, as w e l l as reducing the mo b i l i t y of productive human resources w i t h i n the sector. I f an e f f i c i e n t producer leaves one area, f o r example b r o i l e r production, and wishes to tr a n s f e r to another, f o r example b r o i l e r breeder hatching egg production, he may face b a r r i e r s to entry i n the l a t t e r , and the industry may lose the b e n e f i t of the years of experience and high e f f i c i e n c y p o t e n t i a l . As opposed to the conditions e x i s t i n g i n Washington State, the B r i t i s h Columbia grower i s less challenged to greater production e f f i c i e n c y , since p r i c e i s based on supported Board l e v e l s f o r a l l producers and not on i n d i v i d u a l management expertise. Since the Board has placed a c e i l i n g on maximum quota f o r any i n d i v i d u a l grower (now 1.25 per cent of t o t a l quota outstanding, or 50,000 bi r d s per c y c l e , whichever i s the l e s s e r ) , any advantages which may be accrued through economies of s i z e greater than 50,000 bi r d s per cycle are not a v a i l a b l e , therefore decreasing p o t e n t i a l production e f f i c i e n c y . Since the Board has the power to c o n t r o l production, quantity i s r e s t r i c t e d to maintain higher p r i c e l e v e l s . As i l l u s t r a t e d i n Figure 18, t h i s leads to an i n e f f i c i e n t use of productive resources such as labour, land, and c a p i t a l , increases costs to consumers, as w e l l as decreasing the quantity of product offered. Market Conditions In Washington, p r i c e and supply are based on the p r i n c i p l e s of competition. The product flows flows f r e e l y i n t o the Washington market PRICE 136 Q Q Q r e s QUANTITY Figure 18. E f f e c t of Supply Control on P r i c e and Resource Use V. P g = supported p r i c e P & = e q u i l i b r i u m p r i c e measure of i n e f f i c i e n c y i n resource a l l o c a t i o n at p r i c e P e P - P = cost of support to s e consumer/unit Q - Q = reduction i n product e r offered due to p r i c e support and quota r e s t r i c t i o n — s o c i a l cost Q g - Q g = true economic surplus i f maximum u t i l i z a t i o n of factors at P s Q = r e s t r i c t e d quantity @ P r s Q e = e q u i l i b r i u m quantity Q̂  = quantity capable of being produced at P . s 137 from the southern sta t e s , where a comparative advantage i n b r o i l e r pro- duction e x i s t s . The existence of competition i n the Washington market provides incentive for production and marketing e f f i c i e n c i e s , r e s u l t i n g i n lower costs of production, and consequently lower p r i c e s . In B r i t i s h Columbia, the power of the Board to regulate competition has r e s u l t e d i n an i n e f f i c i e n t market environment. While the Board has the power to regulate quantity, imperfect market knowledge regarding demand i n d i c a t e s that "surplus" can and w i l l be produced. I d e a l l y , surplus production should i n d i c a t e a drop i n domestic p r i c e s . The c r e a t i o n of a "surplus" at a supported p r i c e i n d i - cates the p r i c e exceeds the e q u i l i b r i u m l e v e l and resource factors are i n e f f i c i e n t l y used. Surplus should, economically speaking, be placed on the market, causing p r i c e to f a l l to e q u i l i b r i u m (supply equals demand) and hence maximize returns to resources employed. Since the Board uses production c o n t r o l as a t o o l to maintain supported liveweight p r i c e l e v e l s , r e a c t i o n to surplus product i s to decrease current production to accommodate the surplus. Since the Board cannot accurately p r e d i c t consumer demand, t h e i r estimation of the amount of production which i s "surplus" also stands to be i n c o r r e c t . I f the curtailment of current production i s not s u f f i c i e n t to absorb the surplus at the supported p r i c e , further surpluses w i l l occur. This s i t u a t i o n i s represented i n Figure 19. An alternate approach to maximizing market p o t e n t i a l would be to seek secondary markets to maintain domestic p r i c e , thereby avoiding production f l u c t u a t i o n while c o n t r o l l i n g surplus b u i l d - up. However, t h i s approach i s considered "dumping" by the B.C. B r o i l e r Figure 19. Effect of Overestimation of Demand i n a Supply Control Program. D = estimated demand e D = actual demand a P g = supported price Qg = quantity produced at supported price given estimated Demand D Q = actual quantity demanded at P where Demand i s D a J S A Q - Q = Board's definition of "surplus" x s x a v Reaction: Board reduces the quantity produced based on estimation of - hoping to absorb "surplus" thereby. 139 Marketing Board and not an acceptable s o l u t i o n . The Canadian Task Force on A g r i c u l t u r e has the following comment on the subject of "dumping":^ There i s no doubt that multiple p r i c i n g can often produce greater revenue for the same quantity s o l d . Usually t h i s involves the high p r i c e i n the domestic market and the low p r i c e abroad where one must compete with the products of other countries . . . when i t i s done by others we c a l l i t dumping . . . a two-price system sound p e r f e c t l y respectable; "acting as a d i s c r i m i n a t i n g monopolist" has questionable overtones, but "dumping" seems a despicable action, performed only by one's competitors (usually f o r e i g n ) . The Board f e e l s that the reduction of surplus through the use of export markets discriminates against l o c a l consumers,^ which i s considered to be a greater e v i l than having the consumer pay f o r the i n e f f i c i e n c y of production curtailment. In B r i t i s h Columbia, since any product imported i n t o the province must receive the express permission of the Board, and since the Board's aim i s to promote s e l f - s u f f i c i e n c y within the province, factors of com- parative advantage i n other regions are not permitted to influence B r i t i s h Columbia production. No demand i s , therefore, placed on the l o c a l pro- ducers to increase e f f i c i e n c y to meet a competitive product. In a study conducted to determine the consumer cost of r e s t r i c t i o n s on the i n t e r - p r o v i n c i a l movement of chicken and poultry, b r o i l e r p r i c e s were, monitored i n f i v e Canadian c i t i e s (Winnipeg, Vancouver, Toronto, Montreal and 6 Canadian A g r i c u l t u r e i n the Seventies, p. 314. ^ Personal communication with Art S t a f f o r d , Manager, B.C. B r o i l e r Marketing Board. 140 H a l i f a x ) and f o u r American c i t i e s (New York, D e t r o i t , Chicago and San g F r a n c i s c o ) , monthly from 1969 to 1973. Using a competitive model, consumer l o s s e s were determined by c a l c u l a t i n g the d i f f e r e n c e between the a c t u a l p r i c e i n each region and the estimated landed p r i c e from the l e a s t cost a l t e r n a t i v e r e g i o n . On the assumption t h a t , i n a f r e e market s i t u a t i o n , a consumer l o s s would i n d i c a t e product movement, monthly marketing trade p a t t e r n s f o r each of the Canadian c i t i e s were e s t a b l i s h e d . I n a d d i t i o n , the extent of the t o t a l consumer l o s s was measured to pro- v i d e an i n d i c a t i o n of market i m p e r f e c t i o n s i n p r i c e s and product flows. The f o l l o w i n g r e s u l t s were i n d i c a t e d : 1. The h i g h e s t p o t e n t i a l savings from f r e e r trade and p r i c i n g i n chicken would have accrued i n Vancouver, where trade was i n d i c a t e d i n every month during the four year p e r i o d . 2. Improved trade and p r i c i n g would have produced savings to consumers i n Winnipeg, H a l i f a x and Toronto, w i t h Toronto having the l e a s t frequent i n c e n t i v e f o r trade. 3. Montreal had the l e a s t o p p o r t u n i t y f o r savings i n c h i c k e n s , i m p l y i n g that the market i n that area best served the i n t e r e s t s of the consumers. An even gr e a t e r comparative advantage i n b r o i l e r p r o d u c t i o n e x i s t s i n the Washington market. Wholesale p r i c e s i n June, 1974 were 44 cents per pound and 59 cents per pound i n the Washington and Vancouver markets r e s p e c t i v e l y . Based on these p r i c e s , the landed wholesale p r i c e f o r Washington b r o i l e r s i n the B r i t i s h Columbia market would be R. M. A. Loyns and A. Pursaga, unpublished manuscript. 141 49 cents per pound. Since transportation costs are lower from the Washington market, trade would appear to be i n d i c a t e d . Since 1970, free trade from areas of comparative advantage has been disallowed by the Board. This r e s t r i c t i o n of trade has been honoured by the wholesalers and r e t a i l e r s i n B r i t i s h Columbia, and con- sequently has not been subject to l e g a l t e s t . The unwillingness on the part of these groups to exercise t h e i r r i g h t to purchase product on the free market may p o s s i b l y be associated with the expense and p u b l i c i t y e n t a i l e d i n such an a c t i o n . Channels of D i s t r i b u t i o n In Washington, since the emphasis has been placed on improved production and marketing e f f i c i e n c i e s , the Washington Fryer Commission has a c t i v e l y s o l i c i t e d the support of handlers of the product. The philosophy of the Commission i n the area of processor and r e t a i l e r communication may be summarized by the following statement appearing i n the 1973 Annual Report for the Washington Fryer Commission: The l a s t part of the year was spent . . . i n v i s i t a t i o n s with our processors and executives of our grocery chains, our exchange of problems, ideas, and needs, whereby we may b e t t e r help each other has been most g r a t i f y i n g . This avenue of three-way cooperation and communication i s a "must" i f we are to maintain ourselves as a v i a b l e industry. The Commission appears to have been extremely e f f e c t i v e i n promoting As of 1974, the MFNT (Most Favoured Nation T a r i f f ) rate for eviscerated b r o i l e r s i s twelve per cent, but not greater than ten cents or l e s s than f i v e cents per pound. 142 productive, cooperative, communication between the industry segments, increasing the o v e r a l l e f f i c i e n c y of the marketing program. In B r i t i s h Columbia, since the Board has the power to enforce a stable and p r o f i t a b l e environment f o r l o c a l producers through p r i c e support, production c o n t r o l , and e l i m i n a t i o n of competition, the emphasis on improved marketing e f f i c i e n c i e s and e f f e c t i v e channels of d i s t r i b u - t i o n to increase the market power of the producers has been s u b s t a n t i a l l y decreased. Market Expansion Again, due to the element of competition e x i s t i n g i n the Washington market, the need f o r a d v e r t i s i n g , promotion, and market research and development i s correspondingly high. The Washington Fryer Commission has provided a great deal of assistance i n t h i s d i r e c t i o n through int e n s i v e promotional programs and, to a l e s s e r degree, through support of market research. In B r i t i s h Columbia, producers serve close to one hundred per cent of the domestic market."^ While the Board has expended e f f o r t s i n the area of product promotion and research, since the s t a b i l i t y and grower returns are ensured through r e g u l a t i o n rather than improvement of market conditions, the emphasis has been l e s s than i n the Washington market. The B.C. B r o i l e r Marketing Board entered into an agreement with the Alb e r t a b r o i l e r producers, allowing the l a t t e r to serve a very small northern market i n B r i t i s h Columbia which, due to transportation costs, was deemed uneconomical f o r the Board to serve. 143 Conclusions While the B r i t i s h Columbia B r o i l e r Marketing Board has been vested with f a r more extensive powers to carry out the aims of t h e i r Scheme than has the Washington Fryer Commission, i t i s evident that the objectives of organized marketing have not been achieved. While grower s t a b i l i t y and income has increased, t h i s has been at the expense of market e f f i c i e n c y . By e s t a b l i s h i n g a r t i f i c i a l p r i c e supports, r e s t r i c - tions on production volume, b a r r i e r s to entry and e x i t , and the elimina- ti o n of competition, the Board has greatly increased producer power f i n a n c i a l l y , but has contributed l i t t l e i n the area of improved marketing. The powers vested i n the Board are extremely extensive. Because the approach of the B.C. B r o i l e r Marketing Board has been one of maintain- ing Board established p r i c e s through regulation of production and competition, rather than promoting production and marketing e f f i c i e n c y , a system of monopoly controls has evolved i n place of o r d e r l y , organized marketing. As may be seen i n Figure 20, monopoly rents accrue to the producers at the expense of the consumers, and resources are misallocated at the expense of s o c i e t y . In Washington, while the producers lack the s t a b i l i t y and f i n a n c i a l rewards enjoyed by B r i t i s h Columbia producers, the functioning of the Commission more c l o s e l y approximates an orderly, organized marketing approach. The marketing power of the sector has been increased through the actions of the Washington Fryer Commission i n the areas of a d v e r t i s - ing and promotion, research, and improved channels of d i s t r i b u t i o n . The industry i s challenged toward greater e f f i c i e n c i e s i n production and marketing, and the r o l e of the Commission i s supportive to that end. PRICE m 144 QUANTITY Figure 20. Monopoly Rents, Consumer Costs and Resource Allocation under Supply Control P = Equilibrium Price e P = Board Supported Price (Monopoly Price) Q e = Equilibrium Quantity Q m = Quantity Supplied at P m B = Marginal Cost at Q m S = Supply when Board restricts production A-B = Measure of misallocation of resource (price greater than marginal cost) P AC P = measure of monopoly rent m e c — P - P = increase in cost to consumer m e Q - Q = Loss of product to society e m c CHAPTER VII THE INFLUENCE OF PHILOSOPHICAL DIFFERENCES IN APPROACHES TO ORGANIZED MARKETING IN BRITISH COLUMBIA AND WASHINGTON STATE In evaluating the performance of the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission, i t has been observed that, although each i n s t i t u t i o n has s u c c e s s f u l l y attained the objectives set f o r t h i n t h e i r respective scheme and order, the Commission has had a fa r more productive e f f e c t on the market environment than has the Board. The functions of the Commission have been supportive i n nature, while those of the Board have been regulatory. This has l e d to a market environment i n Washington based on competition and free enterprise while i n B r i t i s h Columbia the market has evolved as a system of r e s t r i c t i v e c o n t r o l s . Given the industry s i m i l a r i t i e s , such as s i z e , age and geo- graphical proximity, the differences i n the two approaches to the organized marketing of b r o i l e r s may be considered to r e f l e c t c e r t a i n p h i l o s o p h i c a l differences e x i s t i n g between the two markets. H i s t o r i c a l l y , a great deal of emphasis has been placed upon com- p e t i t i o n and free enterprise i n the United States. The basis of the Co n s t i t u t i o n of the United States i s the pr o t e c t i o n of i n d i v i d u a l r i g h t s and freedoms, a goal which has been vigorously defended by the American people. In Canada, the concept of s o c i a l i s m i s more widely prevalent. This has l e d to a greater emphasis upon regulatory controls designed to be n e f i t segments of s o c i e t y . 145 146 The e f f e c t of these di f f e r e n c e s i n n a t i o n a l a t t i t u d e s i s n a t u r a l l y r e f l e c t e d i n the l e g i s l a t i o n of the two countries, the b r o i l e r industry being no exception. The authority vested i n the Washington Fryer Commission s p e c i f i c a l l y precludes regulatory a c t i v i t i e s which might i n h i b i t the development of the industry on a competitive, free enterprise b a s i s . The powers vested i n the B.C. B r o i l e r Marketing Board s p e c i f i c a l l y include regulations designed to a t t a i n s o c i a l goals, among those being protection of l o c a l industry, r a i s i n g d i s t r e s s e d incomes i n the farming sector, and maintaining the concept of the family farm. That the production of the a g r i c u l t u r a l sector i s of v i t a l i n t e r - est to society as a whole cannot be questioned. The need f o r a degree of a g r i c u l t u r a l s e l f - s u f f i c i e n c y may be defended as w e l l . In an economi- c a l l y r i c h nation, however, the concept of s e l f - s u f f i c i e n c y i n a g r i c u l t u r a l production must be tempered with the concept of comparative advantage, f o r i t i s only through the maximization of comparative advantage that valuable resources may be best employed. The concept of i n t e g r a t i n g the p r i n c i p l e of comparative advantage with domestic production appears to be more problematic on the p r o v i n c i a l l e v e l than on the n a t i o n a l l e v e l . Perhaps this may best be i l l u s t r a t e d through the following example. Supposing.a group of producers decide they would l i k e to grow bananas i n Canada. Once they begin production, they r e a l i z e that t h e i r costs are greater than those incurred i n the l a r g e r banana producing countries i n the world, and therefore t h e i r p r i c e must be higher. I f they p e t i t i o n the government to r e s t r i c t a l l imported bananas to allow 147 t h e i r product to be sold at the higher p r i c e — i n the i n t e r e s t of Canadian s e l f - s u f f i c i e n c y i n banana p r o d u c t i o n — t h e argument f o r s e l f - s u f f i c i e n c y without the be n e f i t s of comparative advantage becomes cl e a r . I t would not be considered i n the best i n t e r e s t of the Canadian consumers to support the increased cost of production of a small group i n order to obtain a domestically produced banana i n favour of a le s s expensive imported banana. When the argument f o r s e l f - s u f f i c i e n c y i s applied on a p r o v i n c i a l l e v e l i t becomes less reasonable, since the exchange of products between one province and another does not a d d i t i o n a l l y imply an e f f e c t on i n t e r - n a t i o n a l trade. While a v a l i d argument may be presented f o r spending Canadian d o l l a r s on Canadian goods, the argument for spending B r i t i s h Columbia d o l l a r s on B r i t i s h Columbia goods becomes l e s s convincing, p a r t i c u l a r l y when a proportion of the consumer d o l l a r i s devoted to maintaining a monopoly s i t u a t i o n f o r the B r i t i s h Columbia b r o i l e r producers. Comparative advantage i n b r o i l e r production e x i s t s i n eastern Canada and the United States. The producers i n B r i t i s h Columbia have been in s u l a t e d from competition with those areas through a Board r e s t r a i n t of trade. Is i t p o ssible that the p r o v i n c i a l government f e e l s that B r i t i s h Columbia producers are incapable of the l e v e l s of e f f i c i e n c y reached elsewhere? Surely t h i s cannot be the case. Removal of these b a r r i e r s to i n t e r - p r o v i n c i a l and i n t e r n a t i o n a l trade should not be thought of as precluding p r o v i n c i a l production but rather stimulating i t to greater e f f i c i e n c y . The attempt, on the part of the government, to increase the income of marginal producers through p r i c e supports i s an inappropriate approach 148 to the problem of low incomes. This i s p a r t i c u l a r l y true i n the case of the b r o i l e r industry. Due to the low income e l a s t i c i t y f o r chicken (.11),'"' inc r e a s i n g the returns to marginal producers by p r i c e support systems imposes a regressive tax on the consumer. Disregarding for the moment the negative e f f e c t s of p r i c e support systems on industry e f f i c - iency, as a s o l u t i o n to low income they compound the problem by i n c r e a s i n g the cost of food to low income consumers. This e f f e c t has been expressed as follows:"^ I n t e r f e r i n g with the competitive supply and demand mechanism i s an i n e f f i c i e n t way of c o r r e c t i n g the income d i s t r i b u t i o n . What- ever d i s t r i b u t i o n you want to end up with can often be more e f f i c - i e n t l y attained by using the tax system to r e d i s t r i b u t e income rather than using ad hoc Robin Hood interferences with a s i n g l e market. Defending the concept of the family farm i s often posed as a j u s t i f i c a t i o n f o r marketing Boards. Since the concept of family farming i s considered to be a s o c i a l rather than economic goal, the equity i n charging consumers (on a regressive basis) for a s o c i a l good must be questioned. The i m p l i c a t i o n of government support f o r family farms, as has occurred i n the b r o i l e r industry i n B r i t i s h Columbia, i s that the family farm could not survive i n a more competitive environment, and would f a l l below the poverty l e v e l or e x i t from the production sector. I f t h i s i s true, then the problem i s one of r u r a l poverty and human R. M. A. Loyns and A. Pursaga, unpublished manuscript. Samiielson and Scott, p. 480. 149 resource m o b i l i z a t i o n . Without denying the s i g n i f i c a n c e of the problem, i t cannot be considered one which should be resolved by in c r e a s i n g the cost of food. In summary, i t has been observed that there e x i s t p h i l o s o p h i c a l differences between B r i t i s h Columbia and Washington State which s i g n i - f i c a n t l y a f f e c t the approach taken by the respective governments to a g r i c u l t u r a l marketing. The market f o r b r o i l e r s i n Washington State i s r e l a t i v e l y free from governmental regulation, r e f l e c t i n g the p r i n c i p l e s of free enterprise and competition, while i n B r i t i s h Columbia, the market i s characterized by strong, governmentally sanctioned producer-vested controls on p r i c e , supply and competition. While the objectives of the government may at f i r s t appear b e n e f i c i a l to the B r i t i s h Columbia b r o i l e r industry and to societ y i n general, c l o s e r examination r a i s e s fundamental questions regarding both the objectives themselves and the appropriateness of the methods employed to achieve these objectives. The e f f e c t s of regulatory o v e r - k i l l are d i s t r e s s i n g l y evident i n the b r o i l e r market i n B r i t i s h Columbia. CHAPTER VIII CONCLUSIONS Through an analysis of the s t r u c t u r e , conduct and performance of the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission, i t has been observed that both i n s t i t u t i o n s have s u c c e s s f u l l y f u l f i l l e d the goals expressed i n the l e g i s l a t i o n under which they were established. In viewing the e f f e c t s of the r e s u l t i n g market environment on the producers, processors, r e t a i l e r s and consumers, the two markets were sharply contrasted. In B r i t i s h Columbia, there appear to be s i g n i f i c a n t negative e f f e c t s as a r e s u l t of the actions of the Board. In Washington, the e f f o r t s of the Commission appear to be f a r more productive. When comparing performance of the two markets with respect to the p r i n c i p l e s of orderly, organized marketing, although complete success has not been achieved i n e i t h e r B r i t i s h Columbia or Washington State, the concepts of the approach have been c l o s e l y adhered to i n the Wash- ington market, r e s u l t i n g i n improved production and marketing e f f i c i e n c y for b r o i l e r s . While the Commission lacks the powers to equalize income and provide increased s t a b i l i t y f o r producers, i t has been observed that the existence of these powers i n the B r i t i s h Columbia market has l e d to decreased e f f i c i e n c y . The approach taken by the B.C. B r o i l e r Marketing Board, as created and supported by the government, has l e d to a s i t u a t i o n wherein there e x i s t decreased demands for e f f i c i e n c y , increased costs of produc- t i o n , a r t i f i c a l l y supported p r i c e (leading to i n e f f i c i e n t resource use), 151 r e s t r i c t i o n on productive capacity, and higher consumer p r i c e s . The production of b r o i l e r s i n B r i t i s h Columbia, under the B.C. B r o i l e r Marketing Board, may be more appropriately described as a system of monopoly c o n t r o l than an approach to organized marketing. Since the powers of the B.C. B r o i l e r Marketing Board are derived from enabling governmental l e g i s l a t i o n , i t i s the government who must bear the r e s p o n s i b i l i t y f o r the s i t u a t i o n which has been created. When powerful tools of re g u l a t i o n are placed i n the hands of groups whose primary i n t e r e s t i s self-improvement rather than the improvement of the market as a whole, i t i s u n r e a l i s t i c to expect that those groups w i l l not attempt to maximize t h e i r c o n t r o l c a p a b i l i t y to b e n e f i t t h e i r own s e l f - i n t e r e s t . The powers given the B.C. B r o i l e r Marketing Board by the govern- ment to regulate supply, p r i c e and competition are being used not to b e n e f i t the marketing process but to create a monopoly s i t u a t i o n f o r the producers, wherein p r i c e s are being maintained at higher than competitive l e v e l s , and i n e f f i c i e n c i e s i n production are fostered through the crea- t i o n of a r t i f i c i a l s e c u r i t y b u f f e r s . The government's r e s p o n s i b i l i t y i s not l i m i t e d to the creation of a monopoly s i t u a t i o n f o r the producers, however. The a l l o c a t i o n of power to the Board has had extreme e f f e c t s on the behaviour of the industry as a whole. One of the more i n t e r e s t i n g e f f e c t s has been the p r i c i n g behaviour of the r e t a i l sector. The Board regulates supply on the bas i s of estimated consumer demand at a given p r i c e . Since the Board attempts (s u c c e s s f u l l y ) to 152 maximize producer returns, the p r i c e upon which demand i s estimated i s higher than equilibrium p r i c e (p=MC) and production of b r o i l e r s i s r e s t r i c t e d to match supply to demand at a non-equilibrium p r i c e . Since the board regulates production on the basis of consumer demand, and since r e t a i l p r i c e i s established by the r e t a i l sector, not the Board, the Board's a b i l i t y to c u r t a i l production to match demand at r e t a i l p r i c e allows the r e t a i l e r to drive up the p r i c e to consumers and, i n e f f e c t , function as a secure monopolist, e x t r a c t i n g large p r o f i t s by r a i s i n g the r e t a i l p r i c e , confident that the Board w i l l curb production to ensure demand at that p r i c e . The processor i s caught i n a co s t - p r i c e squeeze. The volume and costs of inputs (birds) to a l l processors i s determined by the Board. Hence the processors have l i t t l e i n fluence over these input p r i c e s . They must take the p r i c e as established by the Board i f they wish to remain i n the b r o i l e r processing business. Since they must also bear the high costs of storage (one cent per pound per month), i n order to operate e f f i c i e n t l y they must have a rapid turnover of product to cover operating costs. Since the processor's turnover i s dependent upon r e t a i l buying behaviour, the a b i l i t y of the processor to b i d up wholesale p r i c e by reducing supply to r e t a i l e r s i s reduced. Since the r e t a i l e r i s s e l l i n g many products, h i s dependence on the b r o i l e r processor i s very small. The processor, on the other hand, i s l a r g e l y dependent on the r e t a i l e r . Since the wholesale cost of h i s product has been i n f l a t e d due to monopoly powers of the producing sector, he does not have the a l t e r n a t i v e of secondary markets. He must s e l l i n the r e t a i l sector of B r i t i s h Columbia 153 or go out of business. The processor hence becomes a p r i c e - t a k e r at both ends, p r i c e s being established by the B.C. B r o i l e r Marketing Board on one side and the c o l l e c t i v e action of the r e t a i l industry on the other. Under the guise of marketing, a s i t u a t i o n has been created by the government wherein two sectors of the industry exert considerable monopoly power i n the b r o i l e r market, and the concepts of organized marketing have been ignored. Both the processor and the consumer are adversely a f f e c t e d by t h i s s i t u a t i o n , however i t i s the consumer who must bear the l a r g e s t burden. The processor has the option of d i s - continuing h i s operation i f h i s costs become too high. While the con- sumer has the choice of reducing consumption of b r o i l e r s as p r i c e increases, a government p o l i c y which forces t h i s d e c i s i o n upon consumers must be s e r i o u s l y questioned, p a r t i c u l a r l y when considering the importance of b r o i l e r meat as a low p r i c e d p r o t e i n source. On the basis of the findings presented i n t h i s study, i t appears ,evident that the vesting of powerful tools of market r e g u l a t i o n with primary producer groups by the government has had a detrimental a f f e c t on market performance i n the b r o i l e r industry i n B r i t i s h Columbia. While the b r o i l e r producers i n Washington do not enjoy the s e c u r i t y and f i n a n c i a l gains a v a i l a b l e i n B r i t i s h Columbia, since the powers of the Washington Fryer Commission are f a r l e s s than those held by the B.C. B r o i l e r Marketing Board, the market power of producers has been e f f e c - t i v e l y increased through improved production e f f i c i e n c y , improved response to market conditions, improved channels of d i s t r i b u t i o n and market 154 expansion. In B r i t i s h Columbia, the power of the producing sector has evolved as one of monopoly power, at the expense of market e f f i c i e n c y . The improvement of a g r i c u l t u r e i s v i t a l to the economy and to society i n general. The question i s not one of whether a g r i c u l t u r e deserves government assistance, but rather a question of the degree, type, and d i r e c t i o n of such assistance. On the b a s i s of the analysis of these two s t r u c t u r e s , we may conclude that, i n devising systems to increase o r d e r l y , organized marketing of products, the i n c l u s i o n of controls on p r i c e , supply and competition as a means toward increasing producer market power tends to remove the incentive to e f f i c i e n c y and thereby endanger the marketing process as a whole. E f f i c i e n c y cannot be l e g i s l a t e d . I t must evolve as a response to market conditions and i s v i t a l to the economic health of any given sector. The most b e n e f i c i a l c o n t r i b u t i o n which organized marketing can o f f e r to increase the market power of producers i s to improve the o v e r a l l industry response to market conditions through promotion of greater market and production e f f i c i e n c i e s . Power tends to corrupt and absolute power corrupts absolutely. S i r J. Dalberg Acton 1834-1902 What need we fear who knows i t when none can c a l l our power to account? William Shakespeare 1564-1616 CHAPTER IX RECOMMENDATIONS Based on the information presented i n t h i s study, i t appears evident that c e r t a i n fundamental modifications to the market environ- ment f o r b r o i l e r s i n B r i t i s h Columbia are warranted i f the industry, i s to function i n an e f f i c i e n t , productive fashion. Among these are the following: A. That the government give prompt and serious consideration to the question of producer-vested market c o n t r o l , and the e f f e c t of t h i s type of c o n t r o l upon the market environ- ment. B. That the government take strong a c t i o n to eliminate non- t a r i f f b a r r i e r s which r e s t r i c t the i n t e r p r o v i n c i a l or i n t e r - n a t i o n a l movement of b r o i l e r products. C. That the government give serious consideration to the combined e f f e c t s of p r i c e support and supply c o n t r o l programs on production and market e f f i c i e n c y and on the cost of food to consumers. D. That the r o l e of the B.C. P r o v i n c i a l Marketing Board be strengthened, with the intent of e s t a b l i s h i n g a c e n t r a l body to which the i n d i v i d u a l commodity boards are answerable, 156 157 which can function i n a responsible fashion to coordinate the orderly marketing of a g r i c u l t u r a l commodities and insure that the actions of the i n d i v i d u a l boards contribute b e n e f i c i a l l y to the market environment rather than r e f l e c t narrowly defined s e l f - i n t e r e s t s to the detriment of market performance. E. That i n v e s t i g a t i o n of possible solutions to the problems of resource m i s a l l o c a t i o n , r e s t r i c t i o n of production and d i s t r i b u t i o n patterns, and increased cost of production a r i s i n g from the current quota p o l i c y of the B.C. B r o i l e r Marketing Board be undertaken as soon as p o s s i b l e . F. That the powers held by the B.C. B r o i l e r Marketing Board be recognized by the government as excessive and detrimental to market performance, and that prompt consideration be given to r e v i s i o n of the l e g i s l a t i o n under which the board functions. CHAPTER X SUMMARY The purpose of th i s study has been to compare and contrast the structure, conduct and performance of two i n s t i t u t i o n s established to provide a degree of organization by producers i n the marketing of b r o i l e r chickens. The two i n s t i t u t i o n s which have been studied are the B.C. B r o i l e r Marketing Board, i n the Province of B r i t i s h Columbia, Canada, and the Washington Fryer Commission, i n the State of Washington, United States of America. To evaluate the two approaches to the organized marketing of b r o i l e r products, an objectives model f o r organized marketing i n the a g r i c u l t u r a l sector has been presented. The objectives set f o r t h i n th i s model are to (a) improve production, (b) improve response to market conditions, (c) improve channels of d i s t r i b u t i o n and (d) expand markets. In contrasting the approaches to organized marketing taken by the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission, the f i r s t area of comparison has been that of stru c t u r e. The h i s t o r i c a l development of enabling a g r i c u l t u r a l l e g i s l a t i o n i n each market has been examined. Several d i f f e r e n c e s i n the e x i s t i n g enabling l e g i s l a t i o n i n each market have been hi g h l i g h t e d . In Canada, a l l producer boards are i n i t i a t e d and operate under p r o v i n c i a l j u r i s - d i c t i o n and may be established to regulate the movement of any a g r i - c u l t u r a l or na t u r a l product produced. In the United States, orders and 158 159 agreements may be i n s t i t u t e d under e i t h e r f e d e r a l or state l e g i s l a t i o n , and commodities which may be regulated are s p e c i f i c a l l y designated. R e s p o n s i b i l i t i e s to other sectors of the economy are more c l e a r l y defined i n the American enabling l e g i s l a t i o n , and the controls a v a i l a b l e to commodity boards are f a r less extensive than those permitted under Canadian L e g i s l a t i o n . The o r g a n i z a t i o n a l structure of the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission has been examined and con- trasted. The most s i g n i f i c a n t d i f f e r e n c e i n t h i s area has been found to be i n the degree of market c o n t r o l held by each i n s t i t u t i o n . The B.C. B r o i l e r Marketing Board has the authority to (a) regulate aggregate and i n d i v i d u a l amount of product marketed, (b) e s t a b l i s h the p r i c e growers receive f o r the product and (c) r e s t r i c t the importation of any competing product i n the B r i t i s h Columbia market. The authority of the Washington Fryer Commission i s l i m i t e d to a d v e r t i s i n g and promotion, product re- search, the improvement of standards and grades, and the i n v e s t i g a t i o n of u n f a i r trade p r a c t i c e s . In contrasting the approaches to organized marketing taken by the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission, the second area of comparison has been that of conduct. An a n a l y s i s of the conduct of the Board and Commission has been presented. From th i s i t may be observed that the a c t i v i t i e s of the Board have been focussed mainly i n the area of production regulation, while those of the commission have been p r i m a r i l y concerned with a d v e r t i s i n g and promotion. \ 160 A d e t a i l e d analysis of performance of the B.C. B r o i l e r Marketing Board and the Washington Fryer Commission has been presented as the t h i r d area of comparison. Eight c r i t e r i a of performance were i d e n t i f i e d and observed f o r each market: structures of production, returns to producers, p r i c e , supply, competition, r e l a t i o n s h i p s with processors and r e t a i l e r s , a d v e r t i s i n g and promotion, and research. From t h i s i t has been observed that: Structures of Production tend to be l a r g e r and more v e r t i c a l l y integrated i n the Washington market. Returns to Producers are s i g n i f i c a n t l y higher i n B r i t i s h Columbia. Based on June 1974 estimated returns f o r an average s i z e u n i t i n each market, annual returns to B r i t i s h Columbia producers are approximately 250% of those received by Washington producers. P r i c e s received for b r o i l e r s by producers, wholesalers and r e t a i l e r s are s u b s t a n t i a l l y higher i n the B r i t i s h Columbia market, and l e s s responsive to f l u c t u a t i o n s i n supply l e v e l s . P r i c e margins i n each market appear to be c l o s e l y aligned at the processor l e v e l , but are s u b s t a n t i a l l y higher at the producer and r e t a i l l e v e l i n B r i t i s h Columbia. Supply of domestically produced b r o i l e r s i s more sta b l e i n the B r i t i s h Columbia market. Competition from imported product i s strongly evident i n the Washington market, however non-existent i n the B r i t i s h Columbia market. 161 Relationships with Processors and R e t a i l e r s appear to be productive i n the Washington market. In the B r i t i s h Columbia market, there appears to be a greater separation of aims and objectives between the sectors. A d v e r t i s i n g and Promotion i s given considerably more attention i n the Washington market. Research i s conducted on a more intensive l e v e l i n the Washing- ton market. An analysis of the factors c o n t r i b u t i n g to the observed differences i n the market performance has been presented. I t has been observed that the differences e x i s t i n g i n the market environment f o r b r o i l e r s i n Wash- ington and B r i t i s h Columbia may be l a r g e l y a t t r i b u t e d to the degree of market c o n t r o l vested i n the Commission and Board r e s p e c t i v e l y . An evaluation of performance with respect to (a) stated objec- t i v e s , (b) e f f e c t s on industry sectors and (c) the concept of organized marketing has been presented. While i t has been shown that both i n s t i t u - tions have s u c c e s s f u l l y attained the objectives set f o r t h i n the l e g i s - l a t i o n under which they operate, i t has also been observed that the actions of the B.C. B r o i l e r Marketing Board have had serious negative e f f e c t s on market performance, while the actions of the Washington Fryer Commission have be n e f i t t e d market performance. Successful attainment of the objectives of organized marketing has been more c l o s e l y approached i n the Washington market. 162 The market control exercised by the B.C. B r o i l e r Marketing Board has resulted i n a market environment i n B r i t i s h Columbia wherein costs of production have been i n f l a t e d . Incentives to e f f i c i e n c y have been decreased, resources have been p o t e n t i a l l y misallocated, and com- p e t i t i o n from areas of greater comparative advantage has been eliminated. In the place of organized marketing, a system of monopoly c o n t r o l by producers has evolved. This has had a s i g n i f i c a n t impact on the market performance of the industry as a whole. I t has been observed that, since the B.C. B r o i l e r Marketing Board derives i t s authority from Governmental L e g i s l a t i o n , i t i s the government who must bear the res- p o n s i b i l i t y f o r the s i t u a t i o n created. On the basis of the findings presented i n th i s study, i t has been concluded that, i n devising systems to promote orde r l y , organized marketing of b r o i l e r products, the p r o v i s i o n of producer-vested controls on p r i c e , supply and competition as a means toward in c r e a s i n g producer market power tends to remove the incentive to e f f i c i e n c y and thereby endanger the marketing process as a whole. Selected Bibliography Books Brown, Milton P., Wilbur B. England and John B. Matthews, J r . , Problems i n Marketing. Toronto: McGraw-Hill Book Company, 1961. McCarthy, E. Jerome. Basic Marketing: A Managerial Approach. Homewood I l l i n o i s : Richard D. Irwin, Inc., 1964. McCready, Gerald B. Canadian Marketing Trends. Georgetown, Ontario: Irwin-Dorsey Limited, 1972. Samuelson, Paul A., and Anthony Scott. Economics—An Introductory A n a l y s i s . Third Canadian E d i t i o n . Toronto: McGraw H i l l Co. of Canada, 1971. S t i g l e r , George J . The Theory of P r i c e . New York: The MacMillan Company, 1966. A r t i c l e s i n P e r i o d i c a l s and Journals Arcus, Peter L. "The Farm Products Marketing Agencies Act of 1972." Canadian Journal of A g r i c u l t u r a l Economics, Vol. 20, No. 2 (July , 1972), 98-104. Auer, L. "Labour P r o d u c t i v i t y i n A g r i c u l t u r e , A Canada-U.S. Comparison." Canadian Journal of A g r i c u l t u r a l Economics, Vol. 18, No. 3 (Nov. 1970), 43-55. Emmery, M. K. "The Outlook f o r Poultry Meat i n Canada to 1980." Canadian Farm Economics, Vol. 2, No. 6 (Feb. 1968), 10-13. H i l l , J.T. " V e r t i c a l Integration and the Poultry Meat Industry." Canadian Farm Economics, Vol. 1, No. 3 (Aug. 1966), 8-13. Hiscocks, G. A. "Market Regulation i n Canada." Canadian Farm Economics, Vol. 7, No. 2 (June, 1972), 20-26. Kidd, J . D. F. "National Farm Marketing L e g i s l a t i o n . " Canadian Farm Economics, Vol. 6., No. 3 (Aug. 1971) , 1-4. Longmuir, N. L. "An Approach to the Market Regulation of B r o i l e r Chicken Meat." Canadian Farm Economics, Vol. 8, No. 2 ( A p r i l , 1973), 9-15. Loyns, R. M. A. "A Comparison of L e g i s l a t i v e Aspects of A g r i c u l t u r a l Market Regulation i n Canada and the U.S." Canadian Journal of A g r i c u l t u r a l Economics, Vol. 19, No. 1 (July, 1971), 35-46. 163 164 Perkins, C. F. "The Ontario Marketing Boards." Journal of Farm Economics, XXXIII, No. 4 (Nov., 1951), 969. Walker, H. V. "Marketing Boards and Quota P o l i c i e s f o r Canadian Farm Products: An Appraisal of Performance." Canadian Journal of A g r i c u l t u r a l Economics, V o l . 16, No. 2 (June, 1968), 1-12. Wood, A. W. "The Implications of I n t e r r e g i o n a l Competition i n Canadian A g r i c u l t u r e f o r Government Programs Aimed at D i r e c t Support of Farm Incomes." Canadian Journal of Farm Economics, Vol. 13, No. 1 (1965), 1-19. Papers, Reports and Proceedings Centre f o r A g r i c u l t u r a l and Economic Adjustment. Seminar on Consumer Preferences and Market Development f o r Farm Products. Ames, Iowa: College of A g r i c u l t u r e , Iowa State U n i v e r s i t y of Science and Technology, 1960. Department of A g r i c u l t u r a l Economics and Farm Management, U n i v e r s i t y of Manitoba. "Market Regulation i n Canadian A g r i c u l t u r e . " Paper presented at the Marketing Board Seminar, U n i v e r s i t y of Manitoba, Winnipeg, Manitoba, Jan. 6 and 7, 1972. Department of A g r i c u l t u r a l Economics, U n i v e r s i t y of Guelph. A Comparative Study of A g r i c u l t u r a l Marketing L e g i s l a t i o n i n Canada, A u s t r a l i a , United Kingdom and the United States. P u b l i c a t i o n no. A.E./64-65/11, Guelph, Ontario: U n i v e r s i t y of Guelph, Nov. 1964. Dixon, W. "An Analysis of the P o t e n t i a l Market f o r Further Processed B.C. B r o i l e r Products." 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