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A descriptive study of the marketing boards of British Columbia De Leeuw, Arnold John 1973

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A DESCRIPTIVE STUDY OF THE MARKETING BOARDS OF BRITISH COLUMBIA by Arnold John de Leeuw . B.Sc.(Agr.)» University of B r i t i s h Columbia, 1969  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION  i n the Department of  Commerce and Business Administration  We accept t h i s thesis as conforming to the required standard  THE UNIVERSITY OF BRITISH COLUMBIA August, 1973  In presenting  t h i s thesis i n p a r t i a l fulfilment of the requirements for  an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t freely available for reference  and study.  I further agree that permission for extensive copying of t h i s thesis for scholarly purposes may by his representatives.  be granted by the Head of my Department or  It i s understood that copying or publication  of t h i s thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission.  Department of The University of B r i t i s h Columbia Vancouver 8 , Canada  A DESCRIPTIVE STUDY OF THE MARKETING BOARDS OF BRITISH COLUMBIA  ABSTRACT  This study has two purposes; f i r s t to describe the marketing boards of B r i t i s h Columbia with regard to t h e i r nature, scope of power, organizational structure, quota and p r i c i n g p o l i c i e s , d i s t r i b u t i o n of returns and p o l i c i n g , and secondly to evaluate the effectiveness of marketing boards with p a r t i c u l a r attention to the B.C. B r o i l e r Marketing Board. The theory of cartels provides a framework f o r the analysis of the marketing boards and t h e i r e f f e c t s .  Data f o r the study were obtained  p r i m a r i l y from the various boards, the Dominion Bureau of S t a t i s t i c s , and the Canada Department of Agriculture. The B.C. B r o i l e r Board was examined i n more d e t a i l than the other boards.  This Board was used as a case study i n analyzing some of the  propositions developed i n the marketing board model, against actual data of the b r o i l e r industry of B r i t i s h  Columbia.  The conclusions of t h i s study are based upon detailed analysis of the e f f e c t of the B r o i l e r Board and more casual observations of the other boards. In general, the producers receive a higher and more stable p r i c e f o r t h e i r product, and t h e i r membership i n the marketing boards appears to engender higher and more stable incomes than could have been obtained by independent producers.  This implies that consumers are paying higher prices f o r the  products, provided a l l other things are held equal.  In some instances  consumers may benefit from a longer marketing season f o r l o c a l produce, and a wider range of processed products than would have been possible without the marketing boards.  - iii -  TABLE OF CONTENTS Page LIST OF TABLES  v  LIST OF ILLUSTRATION  vii  Chapter I II III IV  INTRODUCTION  . . .  MARKETING BOARDS  1  . . . . . . . . . .  6  MARKETING BOARD LEGISLATION COMMODITY - MILK  32 ' . .  44  V  COMMODITY GROUP - FRUIT . . . . . . . . . . . . . .  59  VI  COMMODITY GROUPS - POULTRY AND EGGS . . . . . . . .  84  VII VIII IX X  COMMODITY - OYSTERS  116  COMMODITY GROUP - VEGETABLES  123  A CASE STUDY:  151  THE B.C. BROILER MARKETING BOARD . .  SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . .  177  BIBLIOGRAPHY  190  - iv -  LIST OF TABLES Table I  II  III IV V  Page E l a s t i c i t y of Total Farm-Level Demand f o r Food Products  12  T o t a l Exports and Exports of A g r i c u l t u r a l Products To A l l Countries by Major Groupings - Average 1963-67 Calendar Years 1969 and 1971  13  Canadian T a r i f f s on Selected Commodities  23  Qualifying Milk Supplied by Licenced Producers, B r i t i s h Columbia:  1970  .  Value of Production of Milk  (at farm) VI VII VIII IX X XI XII XIII  50  Example of Producer Pay Calculation . . . . . .  XV XVI  . . . .  Forecast of Cranberry Production i n Canada Facts and Figures - The B.C. Tree Fruit Industry D i s t r i b u t i o n of Total 1970  60 66  Crop by Weight . . . . . . . .  67  1970 Apple Crop Sales by Market (pounds)  68  Grape Production Okanagan Valley  . . . . . . . . . . .  78  Chicken Meat Production, 1963-1971 .  86  B r i t i s h Columbia: B.C.  Egg Production and Average Price at the Producer  B r i t i s h Columbia:  97  ;  Turkey Meat Production, 1961-1971  .  109  Sales by Agencies of the B.C. Coast Vegetable Marketing Board . . . . . . . . . . . . . . . . . Analysis of B.C. Coast Vegetable Co-operative  126  Association's Sales XVII XVIII  56  ...  Level XIV  49  135  Total Sales Values of Interior Vegetable Crops Mushroom Sales  ....  140 147  - v -  Table XIX  XX XXI  XXII  XXIII  XXIV  XXV XXVI  Page' Poultry Slaughtered i n Registered Stations i n Canada (Numbers and Eviscerated Weight Equivalent) . . . .  152  Consumption of Poultry Meat  155  Concentration i n the Poultry Processing Industry Percentage of Total Poultry Meat Produced by the Top Eight Firms by Region, Canada, 1963  159  Survey of 170 Registered Processing Plants Arranged According to Total Annual Volume of Poultry Meat Processed by Region, Canada, 1963  .  160  Degree of Concentration i n the Hatchery Industry - In Terms of Percentage of Total Output by Top 2, 4, and 8 Firms, by Region, Canada, 1963  161  Number of Hatcheries Producing B r o i l e r Chicks According to Size of Annual Output by Region, Canada, 1963  162  Farm Size (By quota holdings) A Fraser Valley B r o i l e r Producer's Farm Accounting Records by Flock  - vi -  ..'  172 174  LIST OF ILLUSTRATIONS Page Graph 1  British Columbia Grapes Used, Shown as a Percentage of the Total Crush  Figure 1  Egg Marketing Flowchart  Graph 2  Weighted Average Price to Producers at Registered  82 103  Grading Stations, 1966-1971 Figure 2  Diagram of Administrative  Organization  Graph 3  Average Retail- Price of Broiler Starter Mash  Graph 4  (20-23%), 1959-1972 . . . . . . Live Poultry: Average Yearly Broiler Prices Received by Producers, 1953-1971  106 128  164  167  Graph 5  Total Costs vs. Flock Size  170  Graph 6  Total Costs as a Percentage of Average Total Costs at Minimum Cost Position  170  - vii -  ACKNOWLEDGEMENTS  In the course of the preparation of t h i s thesis the author received valuable assistance from many i n d i v i d u a l s and organizations. Dr. S. Oberg who was Chairman of the Thesis Committee s a c r i f i c e d much of his valuable time i n providing guidance, encouragement, and advice. Special thanks i s extended also to Dr. J . Forbes and Dr. W. Stanbury, the other members of the Thesis Committee, and to T. Bennett from Agriculture Canada, f o r t h e i r comments which were invaluable i n the development of this thesis. The assistance and co-operation received from the representatives of the various marketing boards of B r i t i s h Columbia was fundamental i n providing much of the data incorporated into t h i s t h e s i s . The e d i t o r i a l comments provided by Mr. R. Koat, as well as the able and w i l l i n g assistance shown by my s i s t e r - i n - l a w , Mrs. Janet de Leeuw, and Miss N. Chomyn i n typing the various thesis d r a f t s , deserves special mention.  - viii -  - 1-  CHAPTER I  INTRODUCTION  Purpose o f the Study Although a smaller percentage of the population i s employed i n the a g r i c u l t u r a l sector than a decade ago, the a g r i c u l t u r a l sector remains a f a i r l y important one.''' Agriculture supplies most of the consumers' dietary needs, and the raw materials f o r many secondary i n d u s t r i e s . also provides a large market f o r the manufacturing i n d u s t r i e s . a g r i c u l t u r a l sector has considerable influence i n our p o l i t i c a l  It  The system  as well. Starting i n the depression period of the late 1920's and early 1930's, marketing l e g i s l a t i o n was passed permitting the formation of compulsory marketing organizations to regulate the marketing of some a g r i c u l t u r a l commodities.  Since that time many of these marketing  organizations or marketing boards, as they are commonly c a l l e d , have been formed and are being formed even today. Many questions arise regarding these boards. Question 1.  Are they advantageous  to the economy?  Question 2.  What are the objectives of these boards?  Do they  serve the interest of society or only a small segment of society?  In 1967 r u r a l residents comprised 28% of the population. Agriculture's contribution to the Gross National Product i n the same year was f i v e percent. A g r i c u l t u r a l exports amounted to 13% of t o t a l Canadian exports. See Organization for Economic Co-operation and Development, "The Canadian A g r i c u l t u r a l S i t u a t i o n " , A g r i c u l t u r a l Review, V o l . XVIII, No. 2 (1971), pp. 33-34.  - 2 Question 3.  What kinds of products do they market; what is ;the volume and value of these products, and what are the methods of operation of the marketing boards?  The primary purposes of this study are: 1.  to analyze the marketing boards of British Columbia, with respect to their nature, structure, scope of powers, quota and pricing policies, and  2.  to evaluate the effects of marketing boards, with particular attention to the B.C. Broiler Marketing Board.  The marketing  boards shall be evaluated in the light of the analytical model which shall be presented in the following chapter. Methodology The hypothesis upon which this study rests can be stated as follows: marketing boards have enhanced the welfare of the producers of the commodity groups controlled by the boards, but this does not necessarily coincide with the welfare of consumers or the optimum allocation of resources. Improved welfare of producers will be defined as a higher and/or more stable net income.  Much has been written on farm incomes.  It would  seem that they are generally lower and subject to more violent fluctua2 tions than incomes in the non-farm sector. The B.C.. Broiler Marketing Board was chosen for a case study primarily, because: 1.  of the availability of information,  W. W. Cochrane, Myth or Reality of Farm Prices, (Minneapolis: University of Minnesota Press, 1958), pp. 20-24.  - 3 -  2.  of the age of the board, (Some board's date back to the depression years; as a r e s u l t , time series analysis i s more d i f f i c u l t because of lack of available comparative data.  Many of the other boards are of f a i r l y recent o r i g i n  and have therefore not been able to outgrow some of t h e i r i n i t i a l growing pains.) 3.  of the limited number of products(kinds and c l a s s e s ) .  Information on the marketing boards was obtained p r i m a r i l y from the A g r i c u l t u r a l Products Marketing (Canada) Act, the B.C. Natural Products Marketing Act, the various schemes authorized under the l a t t e r Act; and the  various orders and regulations drawn up by the marketing boards  individually.  These sources of information were supplemented by means  of informal interviews with representatives of each Board, the chairman or secretary-manager, or both. S t a t i s t i c s on p r i c e , volume and value of product were obtained from the  respective boards (usually from t h e i r annual reports or by verbal  communication), or can be traced to s t a t i s t i c s published by S t a t i s t i c s Canada (formerly the Dominion Bureau of S t a t i s t i c s ) , or the Canada Department of Agriculture.  A compilation of the s t a t i s t i c s f o r B.C. i s  found i n the " S t a t i s t i c s of the A g r i c u l t u r a l Industry i n B r i t i s h Columbia 1946-1970". Scope of the Study According to an o f f i c i a l of the B.C. Department of A g r i c u l t u r e , producers registered with the various marketing boards, receive well over 50 percent of the gross cash receipts from farm products.  Most  - 4of the broiler, egg, turkey, cranberry, mushroom, vegetable, and milk production i s concentrated in the Lower Mainland of B.C. and as a consequence most of the activity of these various boards i s centered there.  Tree fruits,  grapes and some vegetables are grown i n the interior of the province. The oyster production i s found on the tidal areas of Vancouver Island. Products not under provincial board control would be livestock, (beef and hogs), some small fruits, grains, seed crops, fodders, flowers and other greenhouse crops, as well as some cole crops.  If returns to producers are  satisfactory, they may elect not to form a marketing board.  The reason for  this may be that: 1.  a ready market exists for the product locally,  2.  an effective co-operative handles a l l the product,  3.  a competitive market exists, such as auction sales with relatively good market information to sellers and buyers, and numerous buyers as well as sellers.  The study i s organized as follows:  In Chapter II an analytical model  is discussed to establish criteria by which to evaluate marketing  boards.  First the supply, demand, and market structure models are described as they relate to agriculture and the sale of agricultural products.  The second  part of this chapter defines marketing boards and their objectives. Having stated the general objectives of the boards, some of the methods at their disposal to achieve these objectives are then outlined, as well as the effects of these methods on the producers, the consumers and the trade.  Chapter III describes  briefly some of the history of marketing legislation and some of the Acts which provide the legal framework for the existence of the marketing boards. In Chapters IV to VIII the various marketing boards are described, i n  - 5particular the history, nature, scope of powers, organizational structure, quota and pricing policies, distribution of returns, and policing. look i s taken at the B.C. Broiler Marketing Board in Chapter IX.  A closer Here, the  controlled broiler market of British Columbia i s compared to an uncontrolled broiler market.  Some of the propositions brought out in the marketing board  model are analyzed with respect to the Broiler Board.  The final Chapter  summarizes and gives some concluding remarks about the observations made in this study.  - 6 -  CHAPTER II MARKETING BOARDS The problems that beset agriculture may be unique because of the nature of the commodities involved and because of the structure of i t s markets.  In the  f i r s t part of this chapter the general economic conditions prevailing in agriculture will be outlined.  The second part will consist of an outline of  the objectives of marketing boards, the methods used to reach these objectives, and a general evaluation of the possible results of marketing boards, from the viewpoint of consumers and producers. GENERAL ECONOMIC CONDITIONS Supply The production of agricultural commodities is highly variable and i s affected by many factors.  Weather is a major variable, that directly influences  the yield of horticultural and agronomic crops.  Diseases and pests, some known  and some unknown, can reduce or eliminate the production of an agricultural commodity.  Technology in agriculture, however, i s developing rapidly.  Examples  of this changing technology are the new irrigation systems and techniques, medications, pesticides, mechanical aids and production practices. Products imported into domestic markets greatly affect local supplies. The volume of a commodity entering Canadian markets depends upon local prices. The volume imported i s generally greater when prices are higher.  Some countries,  however, may subsidize their production, and offer export rebates when a surplus develops and, in effect, "dump"-their product on another country's markets.  - 7 The domestic supply available at any given time i s affected by the characteristics of the agricultural commodity.  Some commodities are seasonal  and because of growth requirements are only harvested at a particular time of the year.  The short harvest period of many agricultural crops leads to a large  volume of product coming on the market at one time.  Also, agricultural products  are frequently highly perishable and maintain their optimum quality for a limited time period only. These two factors limit the length of the marketing season of domestic products for fresh consumption.  However, research and the  application of modern technology, i.e. controlled atmosphere storage for apples and vacuum cooling for leafy vegetables, sometimes makes i t feasible to extend the storage period.  The supply of a commodity can be affected i f alternative  uses for a commodity are available such as the processed form of many commodities. The supply of specific agricultural products depends upon the behaviour of the producers, i.e. whether the available supply changes with a change in the price of the commodity or a change in the price of the inputs.  Although an  individual producer does not determine supply, collectively the response of a l l producers results in wide fluctuations in available supply.  The response  to price changes depends upon the time span available for producers to respond} the existence and availability of alternatives, and the ability of producers to predict future demand. In the short run the supply of agricultural commodities is inelastic, i.e., no perceptible change in supply with a change in price.  Many of the agricul-  tural inputs are fixed and quantities of resources such as land, buildings, and  ^For the importance of time refer to the cobweb cycle in W.W. Cochrane, Myth or Reality of Farm Prices, (Minneapolis: University of Minnesota Press, 1955), pp. 63-80.  - 8equipment can not be readily varied.  Also, once the resources are committed,  generally a period of time has to elapse before they can be committed to alternative uses, e.g. a field once the crop i s sown.  In fact, i n the short  run producers may respond to a drop in the price of a commodity by increasing the use of certain variable resources to maintain a certain level of revenue. Over a longer time span more of the producers' resources become variable and supply becomes more elastic.  If the price of the commodity increases, or  the price of an important input declines so as to reduce production costs, a producer i s likely to change his scale of operation and adopt new technology. Supply has a lagged response to changes in price.  Time i s required for  price information to be relayed from the market place to the producer and for the producer to adjust output. If one makes a generalization about the supply of agriculture commodities, i t could be said that, although many commodities for which there i s no control tend to have wide fluctuations of supply, the periods of excess supply last longer than the periods of short supply.  There are many reasons for this.  First,  producers are more likely to respond, and will respond quicker, to positive price increases than to price decreases. This i s in part due to the immobility of factors such as labour, and the non-substitutability of other factors, such as buildings and land. Agricultural labour usually does not have the special s k i l l s required in other trades. Equipment and buildings are often so specialized that they can be-used only for the production of one commodity.  In some areas  land i s zoned s t r i c t l y for agricultural purposes by the government, creating an a r t i f i c i a l barrier.  A second reason for the persistence of excess supply i s ,  possibly, the existence of government subsidization programs.  Producers may  persist i n their occupation and retain their capital in the farming  - 9 -  enterprise while earning subnormal returns on their investment.  Usually  however, producers earning less than an average rate of return may request 2 subsidization  rather than leave agriculture or their particular industry.  A third reason for the persistence of excess supply is the rapid increase in productivity.^ Excess supply results in lower prices for the agricultural commodity. Lower prices for the specialized.producer means a lower net income.  Until  many producers shift their resources to other uses, low prices and returns w i l l persist.  However, after a significant reduction in supply has occurred,  prices w i l l rise, and other producers will enter the market.  The cyclic  nature of supply results in instability of income for many producers and uncertainty in planning. Demand A demand schedule is defined as the various quantities of a commodity that in a given time period, will be purchased at various prices, ceteris paribus. A demand curve is a graphical presentation of the demand schedule.  A price  change, a l l other things being equal, will result in a change in quantity' demanded and i s shown as a movement along the demand curve.  A shift in the  demand curve is the result of an alteration of other variables.  These  variables include:  The Net Cost of the subsidy program of the Agricultural Stabilization Board during the 13 years of i t s existence equaled $1,075,266,660. See the Agricultural Stabilization Board, Annual Report 1970-71. 'The technological revolution in agriculture in Canada is reflected in almost a tripling of farm output per worker during the years 1947 to 1965. See L. Auer, Canadian Agricultural Productivity, (Ottawa: Economic Council of Canada, Staff Study, No. 24, 1970), p. 21.  - 10 1.  consumer income,  2. prices of close substitutes, or complements, 3.  consumer tastes and preferences,  4.  size and composition of the population.  As consumer disposable income increases consumers, apparently demand food products with more built-in services or convenience.  One has only to notice  the large number of prepared foods sold in the grocery store or the large number of fast food outlets.  This does not imply that consumers are necessarily  becoming lazier, but rather that they are valuing their leisure time more relative to other activities such as food preparation. Besides, i t may be more efficient for a firm to specialize in these activities than for consumers to perform the tasks in their homes.  In an affluent society, people do not  purchase greater quantities of food with an increase in disposable income. However, the dollar expenditures on food probably does increase as consumers switch to higher value products.  This means that the purchases of certain  higher priced items increase while the purchases of lower priced foods decrease. This i s termed income elasticity of demand, which i s defined as the relative change i n the quantity of a good purchased with a change in income.  Individual  4 food items may be highly income elastic.  It does not necessarily follow  though that consumers receive more dietary value per unit for their money as expenditures increase. 4 Some estimated values of the coefficient of the income elasticity of demand in Canada for selected food products are: Potatoes -0.20 Fruits 0.32 Vegetables 0.25 Dairy Products (total) 0.01 Meats (total) 0.35 Eggs 0.15 See L.J. Fredericks, Competition in Agriculture: A Case Study of a Marketing Board. (Unpublished Masters Thesis, Faculty of Agriculture, University of British Columbia, 1965)., p. 14.  As food expenditures become a smaller part of a'family's disposable income, such expenditures become less affected by price changes. In other words, demand tends to be more price inelastic.  Price elasticity refers to the relative  change in the quantity of a good purchased as i t s price changes.  (See Table I).  On the other hand, cross-price elasticity of demand, refers to the relative change in the quantity of a good purchased as the price of another good changes. If there is high cross-price elasticity the goods are substitutes and i f there is a low cross-price elasticity the goods are complementary or unrelated.  The  purchases of complementary goods change simultaneously, whereas the relative volume of substitute goods move in opposite directions.  Generally, i f the price  of a good increases, the volume of the good purchased decreases, and the volume of substitute goods purchased increases.  For example, i f the price of beef  increases, the volume of poultry meat sold w i l l probably increase provided the price of poultry meat does not change as much.  If the price of a good rises,  i t will also act as an incentive for firms to develop and market synthetic products. Consumer tastes and preferences may change gradually over the years, or rapidly as an individual travels to other countries or experiences other influences.  By means of advertising and other promotion media, attempts are  made by firms or producer associations to influence consumer tastes and preferences. The size and composition of the population can not be altered or affected by an individual firm or group. However, by expanding sales to foreign markets, in effect the size and possibly the composition of the population served changes. The foreign market is an important demand variable for many agricultural commodities produced in Canada.  (See Table II). These markets  - 12 TABLE I ELASTICITY OF TOTAL FARM-LEVEL DEMAND FOR FOOD PRODUCTS  N^Farm Prices X. of  Chickens  Turkeys  Eggs  Quant i t iesN. Demanded of  Milk used for fluid milk and cream  Vegetables  Potatoes, Sweet Potatoes  -.7369  .0812  ..0026  .0001  .0030  .0005  Turkeys  .3170  -.9240  .0026  .0001  .0030  .0005  Eggs  .0028  .0009  -.2332  .0020  .0032  .0003  Milk used for fluid milk and cream  .0014  .0005  .0013  -.1445  .0013  .0002  Vegetables  .0033  .0011  .0037  .0024  -.1047  .0007  Potatoes, Sweet potatoes  .0024  .0008  .0017  .0017  .0028  .1082  Chickens  Source:  Geoffry, S. Shepherd, Agricultural Price Analysis (6th ed.) Ames, Iowa: Iowa State University Press, 1963, an insert.  - 13 TABLE II TOTAL EXPORTS AND EXPORTS OF AGRICULTURAL PRODUCTS TO ALL COUNTRIES BY MAJOR GROUPINGS - AVERAGE 1963-67 - CALENDAR YEARS 1969 AND 1971  Commodity  Average 1963-67  1969  1971  - thousand dollars A l l Commodities  8,919,638  14,503,638  17,424,151  Agricultural Products  1,599,742  1,211,188  1,983,603  Grains  " 957,817  501,247  1,048,850  Grain Products (human) 2 Animal Feeds Oil Seeds  93,690  81,738  91,816  32,982  39,151  57,370  89,973  94,312  226,637  Oilseed Products  29,334  20,993  33,299  Animals Living  51,216  47,131  58,161  Meats  60,097  76,382  107,037  Other Animal Products 3 Dairy Products Poultry and Eggs  81,339  93,673  86,290  41,086  36,478  66,395  3,927  6,661  10,823  Fruits and Nuts  23,803  25,812  21,768  Vegetables (excl. potatoes)  24,580  36,723  32,732  Potatoes and Products  13,290  15,067  8,733  Seeds for Sowing  17,151  14,569  16,377  Maple Products  6,037  7,259  5,799  Sugar  3,711  2,148  1,870  37,300  58,875  53,775  Vegetable Fibres  1,181  971  1,417  Plantation  Crops  2,929  5,018  3,780  Other Agricultural Products  28,299  37,980  50,674  1  Tobacco, raw  Excludes seed wheat and seed oats (included in Seeds for Sowing). 2 Excludes oilcake and meal (see Oilseed Products). 3 5-year average heavily distorted due to abnormal shipments of butter oils in 1964. Source: Canada's Trade in Agricultural Products, 1970 and 1971, Agriculture Canada.  - 14 may constitute a regular outlet for a commodity or may be utilized only i n years of high production to divert products from the domestic market that may otherwise exert a downward pressure on price. Market Structure Market structure refers to the "characteristics of the organization of a market that seem to exercise a strategic influence on the nature of competition and pricing within the market".  5  In agriculture, the number of buyers which  purchase commodities directly from the producer, usually for resale, i s generally small relative to the number of producers.  The fact that there are a limited  number of buyers and a large" number of sellers usually means a stronger bargaining position for the buyers.  Even i f this bargaining position or power  is never employed, the potential to exploit the producers does exist, by playing one seller against another to bid the price down. On the other hand at the producer level, agriculture tends to be a highly atomistic industry. A high degree of competition i n absence of marketing boards results from many producers vying for a limited market.  Competitiveness in  agriculture refers to the relative number and relative size of sellers of an agricultural commodity and to the degree of competition from actual or potential sellers of the product from other provinces or countries. The marketing, arid especially the prices, of agricultural commodities are influenced by production in other provinces, by the supply and prices available on the world market and by the impact on protective import and aggressive export policies of other countries.  J.S. Bain, Industrial Organization, (Second Edition; New York: and Sons, Inc., 1968), p. 7.  John Wiley  - 15 MARKETING BOARD THEORY ; In the f i r s t part of this chapter an examination was made of the general economic conditions which prevail when the sale and/or production of agriculture commodities are not controlled.  The second part will attempt to define what  marketing boards are, their methods of operation and a general evaluation of their effects.  •  Definition A marketing board can be defined as a government sanctioned, compulsorymarketing organization which is developed to perform specific marketing operations in the interests of the producers of a commodity or groups of commodities.  In economic terms, a marketing board operates as a cartel.  A  cartel may be defined as "an association of independent enterprises in the same or similar branches of industry, formed for the purpose of increasing the profits of its members by subjecting their competitive activities to some form of common control.^  The elements of cartelization, and therefore also of  marketing boards, are the following: 1.  members should constitute the major portion of the total supply,  2.  members should have a common policy of marketing,  3.  a redistribution of production may or may not be involved,  4.  a redistribution of profits or revenues may or may not be involved.  Marketing boards typically are formed at the instigation of a group of producers.  On occasions governments may have encouraged their formation i n  Clair Wilcox, Public Policies Toward Business (Third Edition; I l l i n o i s : Richard D. Irwin Inc., 1966), p. 743.  - 16 -  an attempt to overcome the payment of subsidies to producers.  After formation,  some governments may participate actively in the control and operation of boards, whereas other governments may take a laissez-faire approach. Marketing Board Objectives The producers' motivations in forming a marketing board are varied, but are mainly related to the improvement of net income. marketing boards have three main objectives. 1.  Being producer organizations  The ultimate objectives are:  To raise the individual farm net income of producers of a particular commodity or commodities.  (Individual producers  obviously expect to enhance their income.  This implies that  some mutually agreeable system of allocation of returns to individual producers can be devised. This may be based on historical performance, marginal costs, farm size, or on some other arbitrary means.  It also may require some form of  control of production.) 2.  To stabilize a producer's net income from the sale of a particular commodity or commodities.  (This requires a  reduction in the year-to-year variability in the net income received by producers.) 3.  To preserve the family farm.  (Some producers feel that i n  a competitive environment their livelihood and independence is threatened. Many large corporations, such as feed companies, processors, and chain stores have absorbed many farm units or have established their own large farming operations.  The motivational impulse for such vertical  - 17 integration by large firms may be to assure supplies, to finance grower expansion, to assure markets, and/or to enhance market control.) Marketing Board Methods In order to achieve their objectives marketing boards may assume: 1. price control, 2. supply control, 3. marketing functions, 4. pooling functions. Each of these methods shall be described separately. Price Control Price competition. - Typically minimum prices to the producers are fixed by the marketing board, eliminating any form of price competition between producers. Buyers are then no longer able to play one producer against another in an attempt to bring about lower prices.  For the producer to s e l l his product for less 7  than the minimum price i s i l l e g a l and i s punishable by the boards. Price discrimination. - Price discrimination i s a method used by the marketing boards to increase aggregate net income.  Different prices which are  not justified solely by differences in costs, are set in separate markets. For marketing boards to benefit from price discrimination, markets must be segregated so that the product can not be purchased by dealers or consumers in the market with the lower price and markets must have different price elasticities.  Markets are sometimes segregated by p o l i t i c a l boundaries and  by natural barriers, i.e. geographical distance, or geographical features 7 See Section 12 of The Natural Products Marketing (B.C.) Act, and Sections 63-64 of The Milk Industry Act (B.C.).  - 18 -  such as mountains and deserts. which the product i s put.  Markets also can be segregated by the use to  Marketing boards may set a higher price for that  portion of the product to be sold on the fresh market, than on that to be utilized for processing. The second condition required to make the use of price discrimination profitable to the marketing agency is the existence of different elasticities of demand for the same commodity in different markets.  Elasticity of demand  is defined as the relative change in the quantity of a good demanded as a result of a change i n price.  In a primary market, such as the domestic fresh  market, the demand for a commodity i s quite inelastic.  Total revenue in that  market i s increased by limiting the volume sold and increasing the price. But demand in a secondary market, such as an export market, i s relatively elastic, and therefore total revenue i s increased by accepting a lower price and increasing the quantity sold.  Total revenue from a l l markets i s maximized  where the marginal revenue from each market i s equal. Supply Control Domestic production of a commodity can be influenced by a marketing board through the issuance of licences and quotas.  A marketing board also can act  as a spokesman on behalf of producers in attempting to influence the flow of foreign products.  (Barriers to entry that prevent new farmers from entering  an industry, and that control the flow of foreign supplies onto the domestic market, may permit abnormal profits to exist i n the long run.  Restricted  entry prevents profits from playing an essential role in the organization of productive capacity in a freely competitive industry.) ..  - 19 -  Licencing. - Marketing boards typically require' licences to be obtained by the growers, truckers, processors, and marketing agencies.  Only licenced and  registered producers are allowed to market local grown product, except where exemptions are granted by the board.  Reasons for granting an exemption include  an insignificant volume or small size of production unit or the producer farms in an area exempted by the board. Licencing in i t s e l f , however is not a barrier to entry unless i t is d i f f i c u l t to obtain the licence.  Licencing is not currently a real barrier  to entry but could, perhaps, become one i f the licence fees were increased. The quota or permit is the real barrier to entry and shall be described in a later section. Wholesalers, truckers and processors are frequently required to be licenced for information gathering purposes.  In order to obtain and retain a licence i t  is mandatory for them to keep records according to the board's requirements. Licencing can be used as a device to ensure the board's control of the major portion of supply.  Control of the flow of commodities within and outside of the  regulated area is maintained by granting a licence only to those who abide by the board's regulations and revoking or suspending licences of those who f a i l to comply. Allocating and Limiting Production. - The optimum allocation of production of a commodity between firms will occur when the marginal cost of producing an additional unit of that commodity is the same for each firm and equal to the marginal revenue of each firm.  Marginal cost refers to the extra total cost  encountered by producing one more unit.  If i t costs more to produce an  additional unit in one firm than in another the extra unit should be produced by the lowest cost firm.  To determine precisely the additional cost to  produce one more unit, however, is d i f f i c u l t i f not impossible.  The optimum  - 20 allocation of production leads to a conflict within the marketing board between the independence of the specific units and total profit maximization.  In the  extreme case, i f profit maximizing were the c r i t e r i a for allocating production, some of the plants would be closed down and the remaining plants, because of their lower costs, would produce the entire volume. not be able to choose their own operating level.  The individual firms would  The operating firms, however,  may resent sharing profits with the remaining firms.  Therefore, because of  measurement d i f f i c u l t y and conflict potential, the allocation of production usually is based on historical performance, plant capacity or some other arbitrary means. Marketing boards control the quantity of one or more commodities of specified quality produced by a specified group of producers entering a particular market or markets in a given time period, by the issuance of quotas. Quotas can be used as a means of: 1.  directly restricting production,  2.  restricting the supply of commodities to be marketed,  3.  rationalizing the flow of products to their final destination, by delivery quotas.  Agricultural production is sometimes curtailed by limiting the quantity of one or more agricultural inputs such as land or capital.  For example, the  marketing board may issue an order limiting the production of a commodity to, say, 1,000  acres of land.  The acreage may be allocated to specific farms.  such a case, the land will have rights attached.  In  If the rights are transferrable  to another owner, by sale of the land or sale of the right, then the rights w i l l become more valuable as the price of the commodity rises.  The price of the  commodity rises as the output is restricted, ceteris paribus.  Land in this  this example becomes a limiting factor of production, and other factors of production such as f e r t i l i z e r or labour will be used more intensively.  The  reduction in output is often not as great as planned by the board or government, because of the intensified use of other inputs. Marketing Quotas are employed for products such as milk and broilers.  The  producer can plan his own combination of inputs to give him his least cost per unit of output.  It is often d i f f i c u l t to produce, exactly, a certain amount of  output because of the nature of the product.  This may lead to surplus production.  The surplus product may be diverted to a secondary low price market i f available, or the producer may have his quota reduced by the amount of the excess in the next cycle.  Sometimes a penalty is employed, as when a producer has to store  his product and bear the total cost of storage until demand relative to supply has increased.  The board, by providing a quota on a year round basis or by  regulating production cycles of individual producers, also may have a steadier supply of product to market. Delivery quotas are frequently used for seasonal crops such as vegetables. As supply exceeds demand at a prescribed price level, such as at harvest time for vegetables, each grower i s permitted to deliver a percentage of his quota. When a l l quota holders have had an opportunity, another percentage is allocated. It i s a method of avoiding a seasonal glut on the market so characteristic of certain commodities. Price in i t s e l f i s a method of controlling the employment of resources and thus output.  By negotiating production contracts and price levels at the  beginning of the season, producers and processors have a basis for planning their production and processing volume accordingly. The producer will respond to a higher price by using more acreage and other inputs. The processors.,  - 22 however, can limit output by contracting only a limited acreage optimum to their needs.  This usually means contracting with the largest and most dependable  growers and with growers with a good location relative to the processing plant. Tariffs. - Barriers to interregional trade are price maintaining instruments, and can be classified as Tariff and Non-Tariff barriers.  Tariffs act as financial  restrictions on trade, and are employed as a tax on imports.  This tax tends to  make i t more d i f f i c u l t for imports to compete in the local market with local produce.  As a result the domestic price for local produce can be raised, giving  the local producers an advantage over foreign producers.  (See Table III).  There i s a host of non-tariff barriers that can be implemented by a country to restrict the volume of imports.  Examples of common non-tariff barriers are:  supplementary import charges, quotas, high quality standards including health and sanitary regulations,and state trading agencies.  Each of these tend to  make i t more d i f f i c u l t and more costly, i f not impossible, for a product to be imported. Marketing boards, by presenting briefs to governments, attempt to influence the government to increase the domestic t a r i f f s , and to implement more domestic non-tariff barriers.  The more d i f f i c u l t the access for foreign goods the more  successful the board can be in controlling total supply and therefore influencing price. Marketing Functions . Single selling agency. - Marketing boards often designate a single selling agency to perform multiple marketing functions. of such agencies are:  -  The most important activities  - 23 TABLE III CANADIAN TARIFFS ON SELECTED COMMODITIES  Unit  Tariffs British Preferential  100 lbs, lb.  37U 1 * .  37j<f  lb. lb.  free free  free 5%  cu. f t . lb.  free free  lb.  2 t  Live, other than purebred stock for breeding  lb.  2 f  Chickens, ducks, geese, guineas, not eviscerated  lb.  12J% ad val.  12l% ad val.  Turkeys not eviscerated  lb.  12i% ad val.  12a%  Chickens eviscerated  lb.  12l% ad val.  12i% ad val.  Commodity  M.F.N.  VEGETABLES Potatoes, table Mushrooms, fresh  41*  FRUIT Apples, fresh Cranberries, fresh Grapes, fresh Vitis vinifera V i t i s labrusca Pears, canned^  free 1$ - 15 wks. max. . otherwise free 2 *  POULTRY  3  2{  ad val. 3  EGGS In the shell  doz.  2 *•  31*  .M.F.N. - Most Favored Nations 2 ^ Canada - New Zealand, trade agreement - duty 1* - Australia trade agreement - duty free 3 Duty to be not less than 5*/lb. or.more than 10*/lb.  4 Canada - Australia - New Zealand trade agreement duty December, January, February - free Source:  Canadian and United States Tariffs on Selected Agricultural Products, Canada Department of Agriculture, Economics Branch, Ottawa, July 1969.  - 24 (a)  to perform marketing services such as grading, washing and packaging to achieve economies of scale and reduce marketing costs,  (b)  to perform the wholesaling function and return to the producer any marketing margin saved,  (c)  to provide storage to lengthen the marketing season for some products,  (d)  to assume through compulsion various marketing functions, thereby avoiding duplication of some services,  (e)  to provide more perfect and up-to-date market information. Better market information at the producer level means a more orderly flow of product onto the market and possibly higher average prices to the producer.  Grading and Standardization of Quality. - The marketing process i s facilitated by grading commodities into uniform lots in accordance with defined standard grades, enabling purchases by sample or description.  Grading enables  agencies and individuals in the marketing channel to obtain the volume of the grade of product they seek. Product promotion. - Marketing boards may attempt, through promotion and advertising, to increase the demand for their product or products. Product development and product differentiation also are undertaken by some boards when feasible.  An individual producer could not afford to do this on any  significant scale. Pooling Functions Pooling i s a means of equalizing producer returns for like products--in terms of variety, grade, and size--in a given time period.  Producers deliver  - 25 their products to the agency or packing house where they are graded. is made of a producer's shipments to the agency.  A record  A l l product lots of a  particular grade are then pooled, losing their identity as to origin. A l l receipts of products marketed during a certain time period, possibly a week or a month, are pooled and then prorated to producers on the basis of shipments received from them during that period, according to quantity, variety, grade, and size of product. Evaluation To evaluate the effect of marketing boards three different points of view shall be taken, namely that of the producers, the consumers and the trade. Producers Generally, producers benefit by higher prices for their products because of supply management. Through supply management marketing boards are able to determine the amount of product to be sold, where the product i s to be sold, and/or when i t is to be sold.  Through supply management they are able to  use price discrimination between alternative markets to maximize producer income where two or more markets are separable, and have different e l a s t i c i ties of demand. Producers generally benefit by a greater stability of price when the supply of a product is controlled. income for producers.  Greater price stability results in a more stable  Being almost guaranteed a minimum price for his product,  the producer will be able to make better long range plans.  Greater stability  and therefore less risk will mean greater availability of credit. The real costs of production and marketing, however, wi11 probably be increased.  The price of the product may be increased by withholding the product  - 26 from the market, by destroying the product, by "dumping" the product, or by restricting i t s production.  By withholding the product from the market, costs  are incurred in the storing of the product.  By destroying the product, costs  are incurred in the form of wasted resources used in producing the commodity. The "dumping" of the product in distant markets incurs transport costs that would not have been incurred i f the product were sold locally. Restricting the quantity of product through quotas also involves direct costs and possibly inefficiencies. Quotas or the right to produce, i f subject to trading between producers, increase in value as the quantity of output that may be marketed is limited. By restricting output, the marketing board is able to raise the price of the product.  The higher the price of the product the more profitable i t will be  to produce.  The right to produce, that is the quota, will increase in value  because the increased profitability will cause the demand for quotas to increase. Marketing or production quotas will cause the cost of production to increase. As the capitalized value of quotas rise the cost of production rises, both actual costs (out of pocket expenses for new producers) and calculated costs 8 (opportunity costs for existing producer-owners). Higher costs may affect the export potential for producers.  Producers will  find i t more d i f f i c u l t to be competitive on the world market because the average Social costs are inherent in any quota scheme which restricts available supply. By restricting supply some variable resources will be freed to be used in production uses in other industries, but total u t i l i t y w i l l be less than when marginal u t i l i t y and marginal cost are in competitive equilibrium. In transferring quota, however, only private costs are incurred because unless economies of scale are affected, the question of ownership will not change marginal cost or marginal u t i l i t y . For further analysis see T.D. Wallace, "Measures of Social Costs of Agricultural Programs", Journal of Farm Economics, XLIV (May, 1962), pp. 580-594.  - 27 price needed to cover average costs will tend to be higher than that of other producing countries that do not have quotas.  The quantity exported may not be  affected i f governments apply large subsidies, or i f export markets are used for dumping purposes. Quotas may also create a r t i f i c i a l barriers to the movement of an industry to regions of greater competitive advantage.  When production i s restricted  to certain farms, production patterns are frozen to a certain geographical location.  Technological change may result in another region having  comparative  advantage and without a r t i f i c i a l barriers, production patterns would normally be altered.  This applies on the larger scale between provinces and countries.  The theory of comparative advantage cannot be applied when quotas or trade barriers are applied. As a result the benefits of specialization are lost. Two forms of inefficiency may occur with the adopting of supply control, namely allocative and X-inefficiency.  Allocative inefficiency results when  producers are not operating at an optimum level of output.  The optimum level  of output would require the farmer to have the size of production unit that would result in the lowest long run average costs and to produce at the right output level to achieve these costs given this scale of plant.  If the  quantity produced is restricted a r t i f i c i a l l y by barriers to entry or monopoly power, allocative inefficiency occurs. X-inefficiency refers to the internal inefficiency of the firm given i t s 9 market context.  It exists only i f the market permits.  If the price received  for the product is higher than the minimum attainable cost of producing i t , then inefficiencies can occur.  This does not mean that inefficiencies will  W.S. Comanor and H. Leibenstein, "Allocative Efficiency, X-Efficiency and the Measurement of Welfare Losses," Economica, XXXVI (Aug. 1969), pp. 304-309.  - 28 necessarily follow.  X-inefficiency typically involves managerial decisions  regarding the choice of technology and discretion in price and quantity of inputs employed. A marketing board by designating a marketing agency may be able to achieve cost savings through economies of scale because i t handles a l l of the regulated product and i t avoids duplicating of services.  These savings may be retained  by the producers or may be passed on to the consumers. Grading and standardization may enlarge the market potential for the product.  By providing different grades, varieties, sizes, and packaging, the  quantity sold may be increased.  Producers will receive higher net revenues by  being able to s e l l a greater quantity of produce, possibly at a price that more than covers the increased costs for such services. The effects of pooling are not felt outside the industry.  It is primarily  a method of distributing returns to producers within the industry.  Pooling i s  generally employed when price discrimination is practiced by the marketing board.  It i s a means whereby a l l the producers of the commodity can share i n  the higher price market but consequently they must also share in the lower price market. Consumers A conflict of interest between producers and consumers is usually implied when speaking of marketing boards.  Although some actions of marketing boards  may. be contrary to consumer interests, some actions will benefit both producers and consumers. Price discrimination implies that consumers i n one market w i l l be paying higher prices than consumers in another market are paying for a similar product, and that the difference in prices between the two markets i s greater than that which i s justified by differences in costs.  Consumers as a whole, however,  - 29 may benefit by price discrimination i f there are substantial economies of scale and total output is increased. To the consumers, barriers to entry usually imply higher prices.  Restrictions  on supply result in the consumer receiving less product for a higher price.  A  higher price, because of supply restrictions, is similar to a tax on the consumer, transferring some of the spending power to the producer.^  Quotas and licences  raise the average cost of production, because the interest on the investment in quota, licence fees and other marketing board charges become part of the production costs.  Quotas and licencing help in controlling wide variations in supply, which  also means less fluctuation in the availability of the product to the consumer. Barriers to interregional trade prevent producers in other areas from acting in effect as guardians over local prices; otherwise producers from various areas are able to transport the commodity to areas where the commodity is higher priced. By increasing the supply, the price is forced down to the level at which i t i s no longer profitable for them to send product to this particular market.  The  price mechanism can no longer work most efficiently when barriers to interregional trade are imposed. It has been noted already that i t is not always certain who will receive the cost savings that are achieved when an agency is designated by the board as a sole selling agency. consumers will  But i f only one agency grades the product the  gain by receiving more uniform quality products.  The provision  ^Allocative inefficiency results when producers are operating at less than an optimum level of output. By assuming actual minimum costs equals lowest possible minimum costs the estimated welfare lost at this level of output equals \ ApAq, where Ap is the difference between price and actual unit costs (economic costs) and Aq is the corresponding difference in quantities. The excess profit to producers (the difference between price and actual unit costs times the quantity produced at the reduced level of output) represents a transfer of income from consumers to producers and is therefore not a social cost whereas allocative inefficiency i s a social cost. 1  - 30 of storage and/or the cycling of production throughout the year by means of quotas means that the consumer will have a more even supply of local produce available throughout a longer marketing season, at a more stable price. Higher prices are a regressive tax.  Since lower income people spend a  higher proportion of their income on food, the cost of any a r t i f i c i a l l y high price is relatively greater on the low income consumer. Trade Another segment of society affected by the formation of marketing boards is the trade, the handlers of the product between the producer and consumer. The trade may be affected to varying degrees when a marketing board i s established.  This may range from almost no affect to complete elimination of  the established channels of marketing.  The board may only monitor the flow of  product, or i t may establish the minimum price for the product and/or the volume of product the trade may handle.  The board may also establish i t s own  agency to handle a l l of the product — washing, packaging, grading and distributing of products to r e t a i l outlets — thus replacing established dealers and vendors. Summary The typical objectives of an agricultural marketing board are to obtain a higher aggregate net income for producers, as well as a more stable net income for producers and to preserve the family farm. employed by the board to achieve these objectives.  Various means may be  Such means includes control  of price, control of supply, assuming various marketing functions and the pooling of produce receipts.  More specifically a board creates barriers to  entry, establishes minimum prices to be paid to producers, and often designates  - 31 -  an agency to perform many of the marketing functions for the regulated product. The benefits of higher more stable prices accure to the producers.  The  consumer may receive some advantage from the actions of marketing boards in having more categories of more uniform local product for a longer period of the year.  Also some consumers may value the stabilization of r e t a i l prices  Consumers are, however, directly taxed to support the higher price brought about by supply restriction and the monopoly power to raise prices.  - 32 CHAPTER III MARKETING BOARD LEGISLATION The early period of marketing boards was rather unstable because of the jurisdictional battles as to whether marketing board legislation should be a federal or a provincial matter.  Eventually this was resolved  by two acts being provided for the operation of marketing boards, one provincial and one federal; the former for jurisdiction within the province, and the latter for jurisdiction outside of the province. The provincial government has appointed a B.C. Marketing Board to ensure that activities of the various boards stay within that provided for in the provincial act. A current issue which will involve both governments i s the operationalizing of the new Farm Products Agencies Act passed by the federal government. This act provides a legal framework for a national agency similar in many respects to a provincial marketing board.  But, here again, conflict of  jurisdiction may arise i f the provinces will be required to delegate some of their powers to the national agency. The History of Marketing Legislation" Presently the marketing boards operate under two acts, one federal, The Agricultural Products Marketing Act, and one provincial, The Natural Marketing (B.C.)Act.  The legal history of marketing boards has been  rather unstable. As a pendulum these boards have swung from under the jurisdiction of the provincial government to that of the federal government and back to the provincial government again, and so on.  The British North  - 33 America Act does not clearly indicate the constitutional position of these entities. The Federal Government in 1934 passed a Natural Products Marketing Act (Canada) which was patterned after the British Agricultural Marketing Acts of 1931 and 1933. The Australian acts were the leader i n this type of organization with their Queensland Wheat Pool Act of 1920, which was followed by the Queensland Primary Products Act.  The essential feature  of these Acts as Perkin points out i s that, "where the majority of the producers of a commodity desire to sell their product collectively, the minority may be compelled by law to join in a common sales policy".''' During this time British Columbia was also active in the f i e l d of 2 agricultural products marketing.  The depression period naturally had  i t s effect on agricultural products marketing.  The f i r s t marketing Act  (1927) in British Columbia followed a four year period of low and erratic prices for tree fruits and declining support from the voluntary co-operative 2 which handled the bulk of tree fruit sales.  Operations under the Act were  somewhat similar to today, with minimum price setting, and prescribed rates of marketing. producer.  Cost of operations were covered by levies imposed upon the  In 1931 the Act was ruled unconstitutional by the federal  government.  The products were produced locally, but were sometimes  transported into interprovincial trade, where regulation i s of federal jurisdiction. C. F. Perkin, "The Ontario Marketing Boards", Journal of Farm Economics, XXXIII (Nov. 1951), p. 969. i  See M. W. Farrell, "Experience with Provincial Marketing Schemes in Canada", Journal of Farm Economics, XXXI (Nov. 1949).  - 34 For a different reason a companion Act was also ruled unconstitutional in 1932.  This was "An Act for the Relief of Dairy Farmers, 1929".  Taxing  powers are also beyond the jurisdiction of provincial governments and the levies for equalization of prices for the milk producersof the Lower Fraser Valley were held to be indirect taxes. Following these i l l - f a t e d attempts British Columbia - immediately after passage of the federal "Natural Products Marketing Act" in 1934 passed a provincial "Natural Products Marketing (B.C.) Act", which was very similar to the federal Act.  It was reasoned that this act would  make a marketing organization in B.C. immune from attack within the constitution of Canada.  The marketing organization would be able to  draw i t s power from either one, or both sources. The jurisdictional d i f f i c u l t i e s did not end there however.  When the  constitutionality of the Natural Products Marketing (Canada) Act was 3 questioned, i t was referred to the Privy Council, London, England.  In  1937 the Privy Council declared the Federal Act ultra vires "on the grounds that i t infringed upon provincial jurisdiction over matters of property and c i v i l rights and individual forms of trade and commerce confined to 4 the provinces".  The B.C. Act passed the acid test because i t was declared  intra vires after i t was put before the highest court of the Commonwealth of that day, The Privy Council of England.  This established the right of  the provinces to pass legislation permitting marketing boards under the At that time this body was the Dominion's highest court, whereas now we have our Supreme Court of Canada as the highest legal body. Perkin, op. c i t . , p. 969.  - 35 authority of the provinces to regulate and control' the marketing and transportation of natural products within each province. The Agricultural Products Marketing (Canada) Act The Agricultural Products Marketing Act (Canada) 1949 was passed by the Federal Government.  The Act states in effect that a marketing board  in any province may with the consent of the government of that province apply to Ottawa under the terms of the Agricultural Products Marketing Act for authority to exercise powers outside of the province similar to those which i t holds within the province. The provincial legislation was only extended to transactions between persons within the province or for marketing of a product for consumption in the province.  Without the additional authority of the Federal Act,  the authority of the Boards was seriously handicapped.  For example, a  fruit grower in the Okanagan could exempt himself from authority of the Board by stating that he had a buyer in Calgary for his product.  The  sale of the fruit would be outside of the province and therefore beyond the jurisdiction of the Board.  The Board would have no authority to  regulate the movement of the product out of the province, nor to regulate the quality, or the quantity of the product, nor could i t set a minimum price.  Similarly, should a trucker carrying the regulated product be  stopped, and i f the product should be found to be i l l e g a l , and therefore seized, he would when testifying in court just have to say that he was taking the product to Alberta in order to have the case against him dropped. Nevertheless, under the provincial marketing schemes the marketing boards  - 36 -  with certification of the Canadian Government have similar powers over product produced in British Columbia for interprovincial or export trade. The only producer marketing board which does not have the sanction of the Federal authority is the Oyster Board. The Natural Products Marketing (British Columbia) Act This Act is virtually unchanged since i t was passed-in 1934. "The purpose and intent of this Act is to provide for the promotion, control and regulation in any or a l l respects of the transportation, packing, storage, and marketings of natural products within the province, including the prohibition of such transportation, packing, storage, and marketing, i n whole or in part." More specifically the Lieutenant-Govenor in Council can vest in any Provincial Board such powers as follows: "a)  to regulate the time and place at which and to designate the agency through which any regulated product shall be packed, stored, or marketed to determine the manner of distribution the quantity and quality grade or class of the regulated product that shall be transported, packed, stored or marketed by any person at any time, and to prohibit the transportation, packing, storage or marketing of any grade, quality or class of any regulated product:  b)  to set the charges for storage, selling, handling or other services by any designated agency:  c)  the right to exempt any person or class of persons from any determination or order of the board:  d)  to require any or a l l persons engaged in production, packing, transporting, storing, or marketing of the regulated product to register and obtain licences from the board, or to cancel the same for violation of orders or regulations of the board:  British Columbia, Natural Products Marketing (British Columbia) Act, R.S. 1948, c 200, s . l .  - 37 -  e)  to f i x and collect the licence fee:  f)  to require f u l l information relating to the production, packing, transporting, storing and marketing of the regulated product from a l l persons engaged therein the right to inspect the books, premises of such persons:  g) to f i x the price or prices either maximum or minimum or both for any grade or class of the regulated product, and different prices may be set for different parts of the province: h)  to authorize any marketing agency appointed by the board to conduct a pool or pools for the distribution of a l l proceeds received by the sale of the regulated product and requiring such marketing agency to distribute the proceeds of sale, after deducting a l l necessary and proper disbursements, expenses, and charges, in such manner that each person receives a share of the total proceeds in relation to the amount, variety, size, grade, and class of the regulated product delivered by him and to make payments in respect thereof until the total net proceeds are distributed :  i)  to require the person in charge of any vehicle in which the regulated product could be transported to permit any member of employee of the board to search the vehicle :  j)  to seize and dispose of any of the regulated product kept, transported, packed or stored, or marketed in violation of any order of the board :  k)  to use in carrying out the scheme and paying the expenses of the board any moneys received by the board :  1) to delegate i t s powers to such an extent and in such manner as the board may from time to time deem necessary or advisable for the proper operation of the scheme under which the board is constituted, provided that this clause shall not permit the delegation by the board of the powers contained in clauses (c), (d), and (e) of this section:  - 38 m)  to make such order, rules, and regulations as deemed by the board necessary or advisable to promote, control, and regulate effectively the transportation, packing, storage, or marketing of the regulated product and to amend or revoke the same."  The B.C. Marketing Board  6  The B.C. Marketing Board, or sometimes referred to as the Provincial Board, i s almost non-functional in a practical sense.  It was established  at the same time as the Natural Products Marketing (B.C.) Act in 1934. It was deemed necessary to have the Provincial Board Act in a supervisory capacity, to ensure that none of the boards went beyond the legal limits entrusted to them through the Natural Products Marketing Act.  Since the  Act could have a tremendous impact on the consumer, wholesale, and r e t a i l trades, the Provincial Board with a regulatory function gives the government some means of control.  Each marketing board, however, engaged in legal  counsel of i t s own, and each quickly understood the legal powers permitted to them.  In effect, the Provincial Board is a liaison body between the boards  and the Minister of Agriculture. At the time of the passing of the Act and the formation of the Provincial Board, the Minister of Agriculture, was alleged having said to the producers, "Here is the legislation; take and use i t i f you wish, i f you succeed we're 7  happy; i f not, don't expect the government to bail you out."  This  sentiment illustrates the government's unwillingness to get involved for fear that p o l i t i c a l pressure or influence will come into play. This Personal Interview with Mr. M. Gilchrist, Chairman, B.C. Marketing Board. Ibid.;Mr\ M. Gilchrist.  - 39 attitude i s different from some other provinces where the Provincial Board has a more active role.  The government of British Columbia - even  to this date - deems i t the best policy to permit and encourage marketing boards to conduct their own affairs because i t i s their business, and their livelihood that is at stake. The Provincial Board does have a positive role, as an administrative body.  It will give counselling and advice upon request.  i t conducts plebiscites.  In addition,  Furthermore, upon the creation of a new  marketing board, i t appoints the f i r s t marketing board members for the provisional board, but within a year an election must be held.  It does  have the power to require each board to: 1.  forward copies of a l l minutes, orders, reports, rules and regulations to the Provincial Board;  2.  keep proper books and records of a l l transactions and to have them audited annually unless exempted by the Provincial Board.  Only the Provincial Board can authorize a marketing board to employ any person for a period extending beyond the date of the next following election, or to enter into a lease for a period longer than one year. "The Provincial Board shall have a general supervision over the operations of a l l marketing boards constituted or authorized under the Act."** Some of the more specific powers outlined in the regulations permit the Provincial Board:  The Regulations under the "Natural Products Marketing (British Columbia) Act, p. 4.  - 40 a)  to require a marketing board to hold a poll at any time to determine i f the producers to whom the scheme applies wish i t to continue;  b)  to f i x or alter the remuneration of board members upon application of a representative number of producers eligible to vote;  c)  to require any marketing board to hold an election where the producers or delegates have failed to elect a member or members of the marketing board;  d)  to f i l l any vacancy in the membership of any marketing board when the member or members of the board do not constitute a quorum;  e)  to exercise a casting vote i n any case where the members of any marketing board are equally divided on any matter;  f)  to require any marketing board to make proper provision for preventing the marketing of any natural produce i n any manner or in any place prejudicial to the operations of any other marketing board.  "The British Columbia Marketing Board shall consist of not more than three members who shall be appointed by the Lieutenant-Governor i n Council."  The regulations under the "Natural Products Marketing (British Columbia) Act, p. 5. Currently (Oct.,1972) the Provincial Board is made up of three c i v i l servants of the British Columbia Department of Agriculture; Mr. M. Gilchrist, the Market's Commissioner, is the Chairman.  - 41 Any person who violates or f a i l s to comply with any of the regulations of the Provincial Board or any marketing board "shall be guilty of an offence and punishable on summary conviction with a fine of not less than twenty-five dollars, and not more than five hundred dollars, or to imprisonment not exceeding three months or to both fine and  imprisonment."  The Farm Products Marketing Agencies Act The most controversial issue presently concerning agricultural product marketing is the need for and the pending success of the Farm Products Marketing Agencies Act of 1972, more commonly referred to as B i l l C-176. A very useful summary of the Act was prepared by Dr. Peter L. Arcus.  11  This b i l l basically follows the pattern of the Provinces but on a national level.  There would be three new institutions namely: 1.  A National Farm Products Marketing Council;  2.  National Farm Products Marketing Agencies;  3.  National Farm Products Marketing Plans.  The National Farm Products Marketing Council would consist of at least 50% primary producers with representation from Western,Central and Atlantic provinces. The Council would act as a liaison between the Federal and Provincial Government, and would also act as an overseer of the activities of the Agencies; moreover, i t would promote effective marketing in interprovincial and export trade.  Ibid., p. 5. P.L. Arcus, The Farm Products Marketing Agencies Act of 1972: Summary, Vancouver, Feb. 1972, (Mimeographed).  A  3  - 42 The National Farm Products Marketing Agencies may be established by the Govenor-in-Council when the majority of producers in Canada are i n favor.  It may purchase farm products of the same kind as the regulated  product; and pack, process, store, ship, insure, export, s e l l or otherwise dispose of the purchased product.  The Agencies prepare and implement  the marketing plans. They may collect fees or levies on the regulated product, promote i t , may delegate responsibilities for interprovincial or export trade, and may act for a province in interprovincial trade. They may also by entering into an agreement act for provinces i n intra provincial trade. Agencies or branches might be established anywhere in Canada or elsewhere. "Each Agency is instructed to promote a strong, efficient, and competitive production and marketing industry for the regulated product or products, having due regard to the interests of producers and consumers of the regulated product." 12 The National Farm Products Marketing Plans may provide for a l l or any of the following: "a)  the determination of who i s growing or producing the regulated product and the inclusion or exemption of these people from under the plan;  b)  the specifications of acts which constitute marketing;  c)  the establishment of marketing arrangements which include the control of quantity (restricted to poultry and eggs) price, time and place, for any or a l l grades of the regulated product;  d)  the conduct of product receipt pools;  e)  the licencing of producers of the regulated product and the imposition and collection of levies."  *^Ibid., p. 3. 13 Ibid., p. 5.  - 43 -  Currently quotas may only be allocated for poultry and eggs.  Before  other commodities may practice supply management, parliamentary support must be obtained. A marketing plan will provide for quota to be allocated on the basis of the production from that area in relation to the total production of Canada over a period of five years immediately preceding the effective date of the marketing plan.  In the allocation of additional  quotas for anticipated growth of market demand, the principles of comparative advantage will be considered. Under the Act the Minister of Agriculture may employ inspectors to ensure a l l regulations are compiled with.  A person convicted as being in  violation of the Act will be liable for a fine of up to five thousand dollars. Although the B i l l has passed the House of Commons and the Senate,it is not yet functional, because of an organizational problem and a legal problem.  The National Council has to be formed, the Agencies established,  and the Marketing Plans drawn up.  The poultry industries are busy drafting  proposals for their new national marketing plans.  The legal problem is  that the individual provinces have to delegate certain powers to the national agency. "Agreement must f i r s t be reached among producers across the country and between the provincial governments. And that agreement may be .elusive. In recent days, Ontario.and Quebec broiler growers have been involved in bitter and protracted negotiations over each one's share of the national broiler market. Quebec wanted 39% and suggested Ontario take 35%. But Ontario producers balked, some demanding that the two provinces share equally, others that the province become self-sufficient."  B i l l C-176 Passes, "Country Guide,"Feb. 1972, p. 8.  - 44 -  CHAPTER IV COMMODITY - MILK THE B.C. MILK BOARD  1  The Boards which shall be studied in the following chapters can be broadly classified as follows: 1. Government Boards a.  The B.C. Milk Board  2. Producer Marketing Boards a.  The B.,C. Cranberry Marketing Board  b.  The B..C. Fruit Board  c.  The B..C. Grape Marketing Board  d.  The B..C. Broiler Marketing Board  e.  The B..C. Egg Marketing Board  f.  The B..C. Turkey Marketing Board  g-  The B,,C. Oyster Board  h.  The B..C. Mushroom Marketing Board  i.  The B,.C. Coast Vegetable Marketing Board  j • The B.,C. Interior Vegetable Marketing Board. Some of the characteristics of producer marketing boards distinguish them from government boards in that they: 1. are composed of elected producers, elected by and from producers of the commodity under control;  Personal Interview with Mr. J . Thorpe, Administrator for the B.C. Milk Board. British Columbia, Milk Industry Act, 1956, c. 28, s . l . (Part III). B.C. Milk Board, General Order 46. Vancouver, B.C., May, 1970.  - 45 2.  have direct delegation of relatively broad powers to an administrative body consisting of producers;  3.  are financed predominantly by levies assessed, on the regulated product;  4.  operate under the Natural Products Marketing (B.C.) Act and the Agricultural Products Marketing (Canada) Act.  On the other hand Government Boards, and in our case the B.C. Milk Board, can be distinguished from the others in that they: 1.  are composed of members appointed by an Order-in-Council;  2.  have delegated almost a l l the powers to an administrative body consisting of c i v i l servants;  3.  are financed by the B.C. Department of Agriculture;  4.  operate under the B.C. Milk Industry Act.  The format which will be followed in studying the various boards w i l l be similar to facilitate comparisons between them.  For each  board there will be a brief outline of the history, indicating some of the conditions which prevailed at the time of i t s formation. This w i l l be followed by a general description giving details on the kinds and value of the products under each board, the area covered by each board, the number of producers participating under the scheme, and a comment on financing of the board.  The next session will give a brief outline  of the powers authorized to, and utilized by the board.  The remaining  sections on organizational structure, quota and pricing policies, distributions of returns, and policing, give .an account of the specific techniques utilized by the board in order to achieve i t s objectives.  -46 History A Milk Board existed prior to 1956 under the Public U t i l i t i e s Commission, but i t was rather powerless.  The Clyne Royal Commission in 1955 found that  farmers in an area shipping the same quality of milk to different processing plants were receiving different prices. for milk:  The Milk Board had set two prices  one for milk used for the fluid market and one for manufacturing.  Actually, there were four prices in effect.  The Fraser Valley Milk  Producers" Association was paying two prices and the independent dairies were paying two prices for the milk used for different markets, but the prices differed between the two groups.  At that time independent shippers  were receiving a higher price for fluid milk, but a lower price for milk used for manufacture, compared to those shipping to the Fraser Valley Milk Producers' Association.  The independent distributors generally had a  larger share of their milk go into the fluid market, affecting the average price received by their producers.  A destructive and often violent  competition existed between the two groups of producers and distributors. The Milk Board at that time was unable to enforce i t s orders, especially after June 9, 1954, when Mr. Justice Nielson held that the "Public U t i l i t i e s Act" did not authorize the Board to require the distributor to post bonds.  In January 1955 the Board's power was completely destroyed  when His Honor Judge Lord held that the Board had no power to direct payment of the producer price.  "The history of Milk Marketing i n the  Fraser Valley is a long history of distrust, disrespect for the law, dissension, litigation, and a rather underhanded form of competition which 2  was not advantageous to either producer or consumer!  British Columbia, Royal Commission on Milk, Report, Victoria, B.C., Queen's Printer, 1955, p. 15.  - 47 The main theme of the "new"  Milk Board instituted under the Milk  Industry Act is equalization, implying that producers in an area receive the same price for similar quality raw milk. "The high priced fluid market cannot, under a system of State control, be reserved for a priviledged few, and a state-administered quota system which permits one farmer to s e l l far more milk on the fluid market than another, when milk is of the same quality, is open to the charge of being discriminatory in i t s nature and operation."^ General Description Five milkshed areas are included under the Milk Industry Act, namely; Vancouver (lower mainland to Hope), Vancouver Island, Kamloops-Okanagan, East and West Kootenay, and the Cariboo and Central British Columbia area. A few small production areas such as the Peace River area and Bulkley Valley, have not elected to come under the Milk Board Control up to the present time. Producers and vendors in the defined areas are required to be licenced. The producers are issued a class II licence i f the premises are classified as an approved fluid-milk dairy farm and the milk meets certain prescribed standards of quality.  The Dairy Branch of the B.C. Dairy Association  regulates the quality of raw milk and conducts farm inspections. Class I licences are issued to vendors and milk jobbers. Each licence has a corresponding fee of one dollar.  To maintain these  licences the holder must comply with prescribed quality standards.  3  Ibid., p. IV.  The  - 48 number of licence holders as of December 31, 1970 are as follows: Area  Class I  Class II  Vancouver  12  1,153  Vancouver Island  15  158  Kamloops § Okanagan  21  155  7  28  _10  39  65  1,533  East $ West Kootenay Cariboo £ Central Totals  The number of licenced producers has decreased by 130 since April 1, 4 1970. Qualifying raw milk is divided into three classes based on utilization as follows:  (for analysis by Area see Table IV).  Class I milk i s a l l qualifying milk, utilized by a vendor for sale or transfer in the fresh form, generally referred to as bottled milk or cream (fluid sales). Class II milk is a l l milk sold to a vendor, and separated for cream, to be utilized for the manufacturing of butter. Class III milk is a l l qualifying milk sold in the province to a vendor and used for ice cream, cottage cheese, etc. Value of milk production in British Columbia in 1970 was $52,484,000 (Table V). Finances for the Board are in the Department of Agriculture's estimates for the province and are included in the vote of the Legislature for that purpose.  In the absence of a vote of the Legislature, expenses will be  paid from the Consolidated Revenue Fund.  A l l money received by the Board  is to be paid into the Provincial Treasury. B.C. Milk Board, 1970 Annual Report.  TABLE IV QUALIFYING MILK SUPPLIED BY LICENCED PRODUCERS, 1970  Total lbs. 1970  % Change 1969  Class I 1970 1969  % Total Class II 1970 1969  39.,87  40.,20  36  13.,24  14.,09  1.34  1.00  30.,96  28.,79  91.,44  9.95  6.77  1.,45  1.,79  82.,40  12.28  10. 69  3.,78  6.61  560,475,499  545,029,760  + 2..83  60.13  59.,80  Vancouver Island  86,263,633  83,909,750  + 2,.80  86.67  85..55  .09  Kamloops-Okanagan  73,490,478  64,447,692  + 14.,03  67.70  70.,21  East and West Kootenays  15,795,198  14,205,878  + 11..19  88.60  Cariboo and Central B.C.  16,178,381  15,129,683  + 6..93  83.44  Vancouver  Source:  Class III 1970 1969  The Milk Board Annual Report for the Year Ended Dec. 31, 1972.  TABLE V BRITISH COLUMBIA: VALUE OF PRODUCTION OF MILK (at farm)  Year Milk Utilization  1970  1969  1968  1967  1965  1966  - $'000i  1964  1960  1955  1950  26,000  26,834  19,928  13,795  -  Fluid Milk Sales  40,028  36,385  34,829  33,577  31,160  27,981  Total manufactured milk  10,690  10,382  11,314  10,481  9,867  8,441  8,747.  8,975  9,273  6,654  Milk used on farm  1,766  1,748  1,759  1,955  1,823  1,870  2,076  2,111  1,690  1,559  Total milk value  52,484  48,515  47,902  46,013  42,850  38,292  36,823  31,920  30,891  22,208  Source:  Dept. of Agricultural Economics, Statistics of the Agricultural Industry in B.C. 1946-1970, Vancouver, University of B.C.  - 51 Powers The Milk Board has the power: 1.  to classify a l l people involved in the production and marketing of milk;  2.  to licence and set qualifications for each such class;  3.  to set a schedule for such licences and the terms and conditions under which the licences can be issued, renewed suspended and revoked;  4.  to prohibit any person not having a proper licence from engaging in any particular part of the industry;  5.  to establish quality standards for milk at each level in the channel of distribution and to prohibit milk which does not meet these standards from being marketed;  6.  to establish accounting values for qualifying milk used in each class;  7.  to establish minimum prices which are paid to producers for qualifying milk of the same butterfat content;  8.  to issue orders in regard to the distribution of the total proceeds of milk so that the market of fluid milk is prorated among producers;  9.  to establish quotas for producers who supply qualifying milk throughout the year and to vary such quotas from time to time, and to set regulations for transferring quota;  - 52 10.  to designate or establish an agency through which fluid milk may be delivered or sold, or to direct a producer to ship to a particular vendor, or to force a vendor to accept milk from certain producers, or to direct excess qualifying milk from one vendor to another in the same area;  11.  to require records, accounts and books be kept, detailing data as specified by the Board, and that data on accounts be sent to the producers;  12.  to audit such books, records and accounts, and to review contracts between producers and vendors.  Organizational Structure "The Board shall consist of not more than three members, the number of whom shall be fixed by the LieutenantGovernor in Council. The Order-in-Council shall appoint the members of the Board and shall set the terms and conditions of their appointment and their remuneration. If there i s more than one member, the Order-in-Council shall designate one of the members to be Chairman of the Board." 5  This structure i s , of course, different from producer boards where the board members are elected from the membership.  The Board i s responsible  to the Lieutenant-Governor usually through the Minister of Agriculture for the province of British Columbia. The employees of the Board are c i v i l servants of the Provincial Government.  They are independent of the producers and distributors.  Milk Industry Act, Section 33.  - 53 Supply Management The quota policy of the Board attempts to keep the total volume of a l l daily milk quotas allotted in line with the total daily volume of Class I requirements  in an area of production.  This policy stabilizes the producer  price by keeping a high percentage of Class I requirements  in quotas, and  as a result does not draw the producer into a production race. Daily milk quotas are established by the Milk Board and are allotted on March 1st of every year.  The quotas so allotted are a means of equitably  distributing among a l l licenced shippers in an area of production, a share of the Class I or fluid milk sales of that area, based on the shippers historic production relative to the total sales of the area.  Thus the  daily milk quotas are market quotas rather than plant or production quotas, and the shipper receives the same minimum producer price for his quota milk of equal butterfat content, as a l l other shippers in the area regardless of the plant to which he ships. Quotas are allotted on the basis of comparison of Class I sales in an area during two successive quota periods.  (Quota periods are the four  lowest months of average daily production in an area during a calendar year.)  Any increase in Class I sales between two successive quota periods  becomes the additional quota to be allotted the following March 1st.  To  this is added and allotted to producers a working margin of 20 percent of the increase of sales during the two periods. Only those producers who have supplied in excess of their daily milk quota during the quota months of the preceding year share in any increase  - 54 to be allotted the following March 1st. The increase i s pro-rated according to the manner in which a producer's total average daily excess relates to the pounds allotted. A producer who f a i l s to supply his daily milk quota during two successive quota periods can have his daily milk quota reduced, effective the following March 1st, to his average daily shipments of qualifying milk during those eight months. Ample provisions have been made to allow a new producer to establish a daily milk quota.  An unlicenced producer who has complied with a l l  regulations under the Milk Industry Act respecting the production and supplying of qualifying milk and who has supplied qualifying milk to a vendor for a f u l l calendar year, may over a five-year period establish and build up a milk quota based on a formula devised by the Board. Quota can only be transferred by written consent of the Board and only after the transferring producer has been licenced by the Board for a period of not less than five consecutive years.  No transfers at  a l l are allowed in the months of January and February in any year. Further qualifications are that a milk quota of less than four hundred or more pounds shall not be divided into amounts of less than two hundred pounds. Price and Pricing Policy The theme of equalization bears out i t s results in the pricing policy. Each producer receives the same value for his quota milk and excess milk, (after adjustment for butterfat differences) as every other producer. The Milk Board i s required to determine accounting values for each class (utilization) of qualifying milk, with butterfat differentials for  - 55 variations in butterfat content.  They are not producer prices.  For fluid  milk the accounting value i s set by a formula which takes into account relevant economic factors, including changes i n the general price level, changes in the price of any or a l l factors of production and the quantity of milk sold on the fluid market. such as:  For milk used for manufacturing purposes  cheese, ice cream and so on, the value i s determined on the bases  of current yields. The Board determines a minimum price for quota milk.  The vendor must  report to the Board, the amount of milk utilized in each class.  The Board  calculates a minimum price for quota milk by multiplying the amount of quota milk utilized in each class by the accounting value established for that class, adding together the values so obtained and dividing this total by the total amount of quota milk.  The effects of this calculation i s equivalent  to arranging that each producer can s e l l the same percentage of his quota milk as any other producer in each class of utilization. The producer price for qualifying milk produced i n excess of quota i s calculated by multiplying the amount of the milk utilized as class II and III, by the established accounting value for each-class. These two resulting products are added together. This total i s then divided by the total amount of excess milk to arrive at a producer price.  Each producer receives the  same minimum price for excess milk adjusted for differences i n butterfat content.  (See example of Producer Pay Calculation i n Table VI.)  Distribution of Returns Payments to producers are the responsibility of the vendor.  This payment  to the producer for the receipts of milk for any month must be made by the nineteenth day of the following month.  -  56  -  TABLE VI EXAMPLE OF PRODUCER PAY CALCULATION (1)  Total receipts of qualifying milk Total receipts of quota milk Receipts in excess of quotas  (2)  10,000,000  lbs.  7,000,000  lbs.  5,000,000  lbs.  Utilization of quota milk: Class I Class II Class III  5,000,000  lbs.  500,000  lbs.  1,500,000  lbs.  Total quota milk received  7,000,000  lbs.  (3.) Calculation of producer price for quota milk using determined accounting values: Class I Class II Class III  5,000,000  Total  7,000,000  lbs. @lbs. @ lbs. @  500,000 1,500,000  $374,000.00  $7.48  11,500.00 55,500.00  2.30 3.70  lbs.  $441,000.00  Average producer price for quota milk: $441,000.00 7,000,000 (4)  tz. in  u  IhM,  =  a hundred  J  J  iv  lbs  '  Calculation of minimum producer price for qualifying milk supplied in excess of quota: Class II Class III  750,000 2,250,000  Total  3,000,000  lbs. @ lbs. §  $2.30 3.70  lbs.  $  17,250.00 83,250.00  $100,500.00  Minimum producer price for excess of quota milk: $100,500.00 3,000,000 (5)  =  $3.35  a hundred lbs.  Summary: (a)  5,000,000 1,250,000 3,750,000 10,000,000  GO  lbs. @ Class I lbs. @ Class II lbs. @ Class III  acct. value $ 7 . 4 8 acct. value 2 . 3 0 acct. value 3 . 7 0  $374,000.00 28,750.00 138,750.00  lbs.  5 4 1 , 5 0 0 . .00  Paid by vendors  5 4 1 , 5 0 0 . ,00  7,000,000 3,000,000 10,000,000  lbs. @ quota price lbs. @ quota price lbs.  Received by producers  $6.30 3.35  4 4 1 , 0 0 0 . .00 1 0 0 , 5 0 0 . .00 5 4 1 , 5 0 0 . .00 541,500.00  - 57 A monthly statement is to be supplied by the vendor to each producer. This statement shows in detail: a)  total weight of milk received from the producer for the previous month;  b)  the weights, prices, and amounts paid for quota and excess milk adjusted for butterfat differential;  c)  a detailed accounting of milk not found to be qualifying milk;  d)  a butterfat test of a l l milk supplied;  e)  total payment;  f)  a l l authorized deductions fully itemized.  Sometimes payments are made twice a month but a statement need be provided only once a month. Policing A l l vendors keep books, records, and accounts which are prescribed by the Board.  The Board once a month audits plant and producer records,  reported sales, etc. to ensure that utilization of the different classes is as claimed by the distributors, and to ensure producers receive the proper returns. Problems Production is divided into milkshed areas, but milk produced in one area is not necessarily sold in that area.  Particularly milk produced  in the Vancouver area i s being sold in other areas of the Province.  As  a result, milk sold in the Interior of British Columbia and which is produced there is affected in terms of lower sales volume.  It also means  - 58 more of this milk is put into secondary uses such as cheese and ice cream, and therefore will mean lower quota allotments for these producers.  The  question now before the Milk Board i s whether there should be one Milk Board Area.** The present arrangement is preferred by the Fraser Valley producers because their sales volume of fluid milk i s increased.  "Kamloops-Okanagan Dairymen's Association Unanimous in Favor of Single Milk Board Area", Country Life in B.C., Vol. 58 (Mar., 1972), p. 1.  - 59 -  CHAPTER V COMMODITY GROUP - FRUIT A.  THE B.C. CRANBERRY MARKETING BOARD  1  History Ocean Spray, an international growers marketing co-operative, had the foresight in 1968 to predict that cranberry producers in Canada and the United States were headed for sure disaster.if production were not controlled. In Table VII the additional acreages planted as well as the estimated production are given.  It became evident that a phenomenal increase could  be expected for a product which has a very low elasticity of" demand. This expansion in production was brought on by advances i n cultural handling of the crop, the major advance being the sprinkler system for prevention of frost damage, but also by the very mechanized method of handling. The very stable and reasonably good prices received, induced producers to increase cranberry acreages.  The growers recognized the voluntary constraints would not  function.  Guided and encouraged by Ocean Spray, a Marketing Board was  formed in British Columbia (in August 1968), while similtaneously a similar organization was formed under American General Orders in the United States. General Description At formation, as today, the B.C. Cranberry Marketing Board (BCCMB) has 27 producers under i t s jurisdiction; 25 of which are also members of the  Personal interview with Mr. Jack Bell, Chairman of the B.C. Cranberry Marketing Board. British Columbia, The Natural Products Marketing (B.C.) Act, British Columbia Cranberry Marketing Scheme, 1968. B.C. Cranberry Marketing Board, General Orders.  - 60 TABLE VII FORECAST OF CRANBERRY PRODUCTION IN CANADA Based hypothetically on the following: In the terms of barrels, allowing 40 barrels per acre the 3rd year after planting 80 4th 100 Sth  Total Acreage Planted i n :  Estimated Production i n : 1969  1970  1971  1972  1973  25,450  25,450  25,450  25,450  25,450  74 1/2 planted 1965  5,960  7,450  7,450  7,450  7,450  217 1/2 planted 1966  8,700  17,400  21,750  21,750  21,750  6,540  13,080  16,350  16,350  11,670  23,340  29,175  79,400  94,300  100,175  254 1/2 prior to 1965  163 1/2 planted 1967 291 3/4 planted 1968  _  40,110  Source:  B.C. Cranberry Marketing Board.  - _  56,840  - 61 Ocean Spray International Growers Co-operatives.  Cranberries, as the name  of the Board implies, is the only crop handled by the B.C.C.M.B. The crop in British Columbia is only grown in the Fraser Valley, and mostly on Lulu Island.  Total land area utilized by the crop is 1,000  acres.  In 1950 the  cranberry production was approximately 1,000,000 lbs., and increasing by about 10 percent each year.  By 1970 production reached 6,000,000 lbs., and  with the large acreage increase of 1966 and 1967 coming into commercial production the 1971 production jumped to 10,000,000 lbs. By 1973 production is predicted to reach 15,000,000 lbs. Cranberry plantings take about four years to yield commercial production.  Average yields in British Columbia  are among the highest in the world because of the good growing conditions, and innovative producers achieve an average yield of about 15,000 lbs. per acre. Prices have been fairly stable, with the growers receiving approximately 15-16 cents a pound. The large production influx, however, caused the price to f a l l to 10-11 cents in 1971 even with the co-operative dumping and destroying of 12 percent of each grower's production. So far the operating costs of the Board are mainly borne by Bell Farms Ltd.  The growers, however, are assessed presently at two-and-a-half dollars  an acre for research programs which are being conducted at the University of British Columbia. Powers Although the Marketing Board has the usual powers within the province "to promote, regulate, and control the transportation, processing, packing, storing and marketing" of cranberries (See Order-in-Council No. 2766) the  - 62 -  Board at present i s concerned primarily with controlling production. Organizational Structure The Board consists of three members with each member holding a three year period of office.  Election i s for one member annually. Although  no o f f i c i a l agency was appointed by the Board, Ocean Spray does the marketing, (including product research and promotion) pooling and pricing as well as handling the product, and the distribution of the returns for the maj ority of producers. Supply Management On establishment of the marketing board a survey was conducted to determine the acreage of cranberries used for commercial production. Having certified each grower's established acreage (presently producing cranberries on a commercial basis or those areas planted before October 31, 1968), the Board set this as the limit for cranberry acreage for each crop year until 1974. During the intervening time between the present and the 1974 crop year, quota shall be issued to each grower based on the average of his two best production years for the six-year period 1968-1973. The Board will from that time on annually determine the quantity that 2  "would tend to effectuate orderly marketing"  (marketable quantity).  Each grower would then be permitted to market a percentage of his quota which could be increased during the year i f the market demand is greater than estimated. If the estimated production quantity i s thought to be equal to or less than the estimated marketable quantity, the Board would have the right to suspend or increase the quota allotment. The Board may increase quotas but on a uniform basis to a l l growers. 2  B.C. Cranberry Marketing Board, General Orders, p. 5.  - 63 -  B.  THE B.C. FRUIT BOARD  3  History Tree fruits were the f i r s t commodity group to be under marketing Legislation in British Columbia.  As indicated under the section entitled  "History of Marketing Legislation" in a previous chapter, a period of low and erratic prices existed before implementation of this legislation. Voluntary co-operation also failed to market this commodity effectively. A distinction from other fruit growing areas i s that the British Columbia tree fruit growing area does not l i e close to a large market, Vancouver being the closest.  A l l of the western market, however,is not large enough  to absorb even half of the crop of any one commodity.  Also, the growers  and packing houses (of which many were co-operatives) were competing amongst themselves.  Those growers who could sell f i r s t and cultivate the closest  markets obtained the highest prices.  Some buyers by having growers  compete could obtain unusually low prices.  This competition lead to  generally depressed prices. The f i r s t provincial Act on marketing Legislation the "Produce Marketing Act (1927)" was declared ultra vires.  In 1934, both Natural  Products Marketing Acts were established by the provincial and federal governments.  After the Federal Act was declared unconstitutional in 1936,  the Fruit Board had the control only over intra provincial sales of local produce.  This was a sharp curtailment of the power and effectiveness of  the Fruit Board, which relies heavily on out-of-the-province markets. 3  Personal interview with Mr. N. Taylor, Chairman of the B.C. Fruit Board. British Columbia, Natural Products Marketing (B.C.)Act, British Columbia Tree Fruit Marketing Scheme, 1960. B.C. Fruit Board, British Columbia Fruit Board Provincial Marketing Regulation, Kelowna, B.C., June, 1971.  - 64 The outbreak of World War II implemented the War Measures Act i n 1940, giving the Fruit Board the controlling power over a l l commercially grown tree fruits in the province until the last of the 1946 crop was sold. With passage of the Federal Legislation in 1949 of Agricultural Products Marketing (Canada) Act, the B.C. Fruit Board was given authority to regulate the marketing both in and out of the province, of tree fruit grown in the regulated area. General Description The regulated product under the jurisdiction of the B.C. Fruit Board refers to any tree fruit grown in the regulated area.  In order of importance  this would be apples, pears, cherries, peaches, prunes, apricots, crabapples and plums. The regulated area comprises approximately the south-eastern portion of the province, or more specifically, "that part of British Columbia lying east of the 121st meridian of west longitude and south of the 51st 4 parallel of north latitude".  In most other areas of the province,  specifically around Lilloett and on Vancouver Island, local demand equals local supply.  On Vancouver Island many young plantings are coming into  commercial production and a slight surplus i s starting to develop.  Some  introductory steps seem to have been made, or are in the process of being taken, to form another fruit board on the Island.. The number of fruit growers currently operating under the Board i s approximately 3,200. One of the leading problems of the Fruit Board i s 4 B.C. Tree Fruit Marketing Scheme, op. c i t . , p. 1.  - 65 to keep a l l eligible growers registered.  "A 'grower' means any person owning  or operating an orchard of one acre or more, fully planted in fruit trees in the area, and includes any person operating under lease or agreement the terms of which provide that the returns for the crop are payable to the person operating the orchard."  5  The rate of subdividing, and transfers of  ownership makes registration of growers an arduous task, especially since subdivided property i s not necessarily immediately developed, but often subsists as small parcels of orchards. B.C. Tree Fruits Ltd. an agency of the Fruit Board had gross sales receipts for over thirty million dollars for the year 1970-1971 for a volume of 143,907 tons of fruit.  (See Tables VIII - X for volume and value of  product classified according to kinds of f r u i t , and an analysis of sales by market for the 1970 apple crop.) Currently only two types of licences are in effect: and a roadside stand operator's licence.  a shipper's licence,  The former must be held by any  person engaged in the packing or storing of the regulated product.  There are  twenty-two packing houses in the regulated area, three of which are independents and the remainder are co-operatives. The shipper's licence fee i s calculated on a five-year average of units packed or stored. regulated product equals one unit.  Forty-thousand pounds of  A basic rate of seventy-five dollars is  applied to those packing or storing five units or less.  For those packing  or storing in excess of five units, grouping is administered according to quantity; for example, six units are in group one; ten units are in group five.  The assessed fee for those packing and storing tree fruits is 22.5  B.C. Fruit Board, B.C. Fruit Board Provincial Marketing Regulation, op. c i t . , p. 1.  - 66 TABLE VIII FACTS AND FIGURES - THE B.C. TREE FRUIT INDUSTRY 1966 Crop  1967 Crop  1968 Crop  1970 Crop  Sales Value of Crops (to nearest $1,000) Apples Cookers Pears Prunes Peaches Apricots Crabapples Cherries Plums Grapes TOTALS  $ 17,770,000  $ 23,629,000  $ 23,457,000  -  -  -  $ 33,849,000  $ 33,265,000  180,000 2,933,000 963,000 1,467,000 970,000 72,000 2,000,000 17,000  $ 26,372,000  This money pays:  198;000 3,626,000 1,042,000 1,639,000 478,000 64,000 3,161,000 12,000  175,000 4,201,000 589,000 1,489,000 653,000 53,000 2,635,000 13,000  $ 20,919,925  187,343 3,881,823 924,492 1,236,753 727,871 46,675 2,724,140 13,270 80,920  $ 30,743,212  - The Sales Agency costs - The Packing Houses' costs - The Growers for their fruit Varieties of Acreage:  The Orchards: 2 - 1/3 million trees 35,600 acres planted 3,660 orchards from 1 to 300 acres 76% are sprinkler irrigated  Apples Pears Prunes Peaches . Crabapples Apricots Cherries Plums  21,400 3,800 1,700 3,400 200 2,000 3,000 100  Cold storage capacity, apples (basis 40 lb.bushel box) Controlled Atmosphere storage capacity, apples Total investment in Packing Houses and Cold Storages  acres acres acres acres acres acres acres acres  7,639,000 boxes 1,040,000 bushels  $ 28,000,000  Crop Size (tons) 1966 Crop  1967 Crop  Apples Cookers Pears Prunes Peaches Crabapples Apricots Cherries Plums Grapes  180,000 996 20,971 5,460 7,220 609 6,411 3,577 85  135,813 968 18,057 5,938 7,636 528 2,558 6,818 58  87,461 721 21,166 2,631 5,276 359 3,069 3,573 53  -  107,886 801 17,868 3,817 4,525 263 3,305 5,143 49 250  TOTALS  225,329  178,374  124,309  143,907  Source:  -  B.C. Tree Fruits Ltd.  -  1968 Crop  1970 Crop  - 67 TABLE IX DISTRIBUTION OF TOTAL 1970 CROP BY WEIGHT  Pounds  Percent  215,771,519  74,97  Apricots  6,609,775  2.30  Cherries  10,285,202  3.57  9,050,902  3.14  Pears  35,736,462  12.42  Prunes  7,633,325  2.65  285,087,185  99.05  1,602,347  .56  Crabapples  526,453  .18  Grapes  500,166  .17  Plums  97,607  .04  2,726,573  .95  287,813,758  100.00  Apples  Peaches  Others: Cookers  - 68 TABLE X 1970 APPLE CROP SALES BY MARKET (Pounds).  Pounds  Percent  Western Canada  93,231,561  43,22  Eastern Canada  29,907,197  13.86  U.S.A.  45,328,501  21.01  United Kingdom  2,911,745  1.35  Europe  4,734,318  2.19  South East Asia  8,351,394  3.87  Others  1,974,674  .91  186,439,390  86.41  Sun-Rype  24,701,390  11.45  Shrinkage  4,630,739  2.41  215,771,519  100.00  TOTAL  - 69 times their group number plus seventy-five dollars, the basic fee.  A part  of a unit is considered one unit. The roadside stand operator's licence fee is f i f t y dollars. A registered grower selling within his own trading area is exempted, also when he is selling his own produce to a retailer or roadside stand operator.  A trading  area is basically the closest town where one would do his shopping, including i t surrounding area.  At any rate, the Board's regulations clearly spell out  the borders of these trading areas. To transport fruit from one trading area to another, or to a point not in a trading area, for the purpose of selling the produce at a roadside  stand,  a f i f t y dollar permit is required. The funds received by the Fruit Board are used to pay for the budget of the B.C. Fruit Growers' Association, for policing, quality control work, and administration. Powers As with many marketing boards the B.C. Fruit Marketing Scheme grants the B.C. Fruit Marketing Board a broader sweep of powers than is utilized by the Board. The Board has the power to appoint a sole selling agency for the marketing of tree fruits.  The Board regulates and polices transportation of tree fruits  out of the producing area, to ensure that the agency is the exclusive selling agency. The licencing requirements and the corresponding assessed fee are stipulated by the Board. The Board has the power to set grading standards over and above those required by various government departments.  - 70 Price fixing for fruit sold at retail stands has just recently been instituted by the Board, as yet only for Bartlett pears and peaches during 1971, but this control may be expanded to include other fruits in the coming crop-year.  This policy means that no fruit may be offered for sale or  advertised below the price publicized by the B.C. Fruit Board.  This action  was undertaken to get away from the familiar 'one-dollar-a-box' sales, which hurt so many of the growers. Organizational Structure The Fruit Industry has three major divisions, or power organizations. The B.C. Fruit Growers' Association is the p o l i t i c a l arm, and the regulation and policy-making body.  B.C. Tree Fruits Ltd. and Sun-Rype Products Ltd.  are the more familiar, and are the organizations which sell and process fruit.  The third component is the B.C. Fruit Board, which has been  authorized the legal power as outlined in the scheme. Anyone who has one acre or more is entitled to a registered grower status under the Fruit Board.  Every registered grower is automatically a member of  the B.C. Fruit Growers' Association. The Association is divided into three District Councils: Southern, and Kootenay Council. into twenty locals.  the Northern,  These three councils are further divided  Each local depending on i t s size (as determined by the  number of growers, and acreage), sends delegates to the Council.  There is  one delegate for every f i f t y growers and one for every one-thousand acres. Council meetings are held monthly.  According to a schedule, the Northern  and Southern Council have four members each, and the Kootenays has one member on a central executive of the B.C. Fruit Growers' Association.  Besides  - 71 these nine members the Association has a president and vice-president. Nominating meetings are held in the f a l l and councils send in their nominations to the Association.  A l l the delegates at the Annual Conventions  vote for the ten Industry Directors, and for the president and vice-president of the Association as well as for the three members of the B.C. Fruit Board. B.C. Tree Fruits Ltd. and Sun-Rype Products Ltd. have the same board of directors and management team. The Articles of Association are different for the two companies.  B.C.  Tree Fruits Ltd. cannot buy product; i t can only s e l l fruit which i t holds in trust from the growers.  Sun-Rype Products Ltd. can buy products as,  for example, concentrates of orange, grapefruit and apricots, and culls (when there is a shortage), and apple juice (from Nova Scotia and packed to Sun-Rype's specifications).  Sun-Rype is basically a salvage process  company. B.C. Tree Fruits Ltd. has a subsidiary called Tree Fresh Storage Ltd., the purpose of which is to augment storage f a c i l i t i e s , by providing some controlled-atmosphere storages for the industry. Supply Management Production control is not practiced by B.C. Fruit Board.  The length of  time required to get into production makes i t impractical to state who  can  produce and how much can be produced. Basically, B.C. Tree Fruits has to take the whole tree fruit crop.  If  the crop is too large, or i f a l l the grade 'C produce can not be sold at a given price, then the excess is diverted to Sun-Rype for juice, or to canners. Large, unpopular fruit sizes that are subject to premature spoiling are sold  - 72 to Sun-Rype for peeling and slicing, while the small ones are processed into juice.  The two companies work to maximum advantage for the utilization of  the whole crop.  None of the fruit crop has even been held back or destroyed  as long as any market could be found for i t or as l i t t l e as a quarter of a penny per pound could be made on the product. department for developing new products.  Sun-Rype has a huge research  Only recently has a market been  found for cull cherries and cull pears, namely the wineries.  Prior to this  these culls were dumped or used for pig feed, because they could not be sold for fresh market sales (being below requirements of the government's grade standards).  In this way then B.C. Tree Fruits practices market control and  exercises orderly marketing. Price and Pricing Policy Contrary to popular opinion, B.C. Tree Fruits Ltd. is not a monopolistic power which has the customers at i t s mercy. The price is dictated by the United States mainly, with the state of Washington playing a major role. Price is established by checking British Columbia production against last year's, B.C. Tree Fruits' market, the United States volume against last year's and the world market.  Supply'is then tailored to demand.  Differential pricing is practiced but not to the point of charging British Columbia customers more than others.  A vast majority of sales  are made F.O.B. to a l l markets, but some markets sometimes receive freight assistance and therefore are quoted a delivered price. Distribution of Returns B.C. Tree Fruits Ltd. does the i n i t i a l pooling of the proceeds received for the f r u i t .  Pooling makes i t possible for growers to receive the same  - 73 price for their fruit regardless of where the fruit is shipped.  B.C. Tree  Fruits Ltd. after deducting their costs, distributes according to the kind, grade and size of fruit received from each packing house.  The  shippers  receive returns based on the value of the raw fruit plus a packaging differential.  There are many different packs for the f r u i t .  fruit, is wrapped and some is not. cost of the packaging required.  Some of the  This differential is based on the average The shipper conducts a house pool and  distributes the proceeds after deducting his charges.  Pooling is a means  of distributing net returns among producers. Quality control, packing and storage requirements are established by legal contract between a shipper and B.C. Tree Fruits Ltd.  Okanagan Federated  Shippers Association Inc. has a committee which negotiates with B.C. Tree Fruits to develop this contract but i t is signed by each individual shipper. Policing The Fruit Board sees i t s main role as that of enforcing the regulations regarding the movement of product; so that B.C. Tree Fruits can act as the sole selling agency for the fresh f r u i t .  The Fruit Board employs a number  of inspectors (four to seven) who are usually retired police officers.  An  established maximum per season and per vehicle of twenty standard packages of f r u i t , may be purchased for personal use.  A l l roadside stands must  display a notice in Board Form No. 2 advising purchasers of this regulation. Any other transportation of fruit from a trading area requires a manifest, or a permit in the case of a commercial roadside stand operator. The inspector seizes any product moving i l l e g a l l y and the Fruit Board disposes of i t for the best price obtainable.  It must be remembered, however,  - 74 that the bootleggers can make a profit because they s e l l poor quality f r u i t . This conduct affects the fruit industries* reputation, and the returns received by the growers. The wholesaler whose sales suddenly drop will be on the lookout for peddlers and is advised to inform the Board of peddlers.that have been seen in the area, and when possible to provide vehicle identification. There i s a check station operated on the Hope Princeton Highway, at Sterling Creek, for the purpose of checking commercial vehicles. Problems The main problem for apple growers i s that there i s a world over-supply. When a l l the new plantings in Washington State are in commercial production, this state w i l l become a most important supply area.  No doubt, the time is  near, or has already arrived, that British Columbia fruit must compete by offering superior quality. Soft Fruit is faced with distressed selling from the United States and the injury caused by the time factor.  California, Oregon and Washington  producers are selling the last of their crop before British Columbia producers put their f i r s t soft fruit on the market.  This means, because of the more  northerly position, British Columbia's f i r s t fruit i s competing with the low prices of these other producing areas which have flooded the market and which are then removing the last of their supply.  The B.C. Fruit Growers want the  government to put on an automatic surtax based on a r e a l i s t i c average of pricing over the last five years, to compensate so that the fruit does not depress the price in the Canadian market.^  B.C. Fruit Board, A Brief to the Select Standing Committee on Agriculture, March 22, 1972.  - 75 The cost of orchard land is higher in British Columbia than in many other producing areas.  Land values are driven up by the subdividing potential  found in these areas.  This factor makes i t d i f f i c u l t for the British Columbia  growers to compete with producers in other areas who have lower average production costs.  - 76 C. THE B.C. GRAPE MARKETING BOARD History In 1952 wineries went into contracts with growers to grow grapes for the contract price of 120 dollars per ton.  This price was maintained up  until 1965. The one price probably was attractive at the beginning of this period, but the rising cost of production made i t finally unprofitable. Another development during the latter part of this period was the increased use of hybrids and the vinifera variety of grapes.  These grapes are more  suited for the wine industry than the Labrusca variety, but less suited for table use.  Some, but not a l l , of the wineries were paying a higher price  (140 dollars) for the better grapes, but until recently these grapes did-not constitute much of the total volume.  In 1965 the wineries gave what the  growers considered only a token increase (five dollars per ton) to raise the price of the Labrusca type to 125 dollars per ton. The growers, because of the inadequate price which they said did not cover rising costs, worked for the establishment of the B.C. Grape Marketing Board in 1970. General Description Although the t i t l e i s the B.C. Grape Marketing Board, the regulated product i s defined much more specifically i n the scheme as "grapes for 8 manufacturing purposes grown in the province of British Columbia".  The  7 Personal interview with Mr. W.E. Raikes, Chairman, and Mr. L.R. Stephens, Secretary-Treasurer for the B.C. Grape Marketing Board. British Columbia, The Natural Products Marketing (B.C.)Act, B.C. Grape Marketing Scheme. 8 B.C. Grape Marketing Scheme, op. c1971. i t . , p. 1. Board, General Orders,  - 77 -  purpose of "the scheme is to promote, control, and regulate, under a marketing board subject to the direction of the Provincial Board, the 9 marketing of the regulated product to a processor". The largest percentage of grape production is used for processing. The last few years as indicated in Table XI show a marked increase of volume of grapes used for this purpose. total production is used in this way.  Presently about 94 percent of Because of the grape crop's  susceptibility to frost, production is subject to severe fluctuations. In 1970 the total production was 9,037.6 tons, while in 1971 the total production decreased to about 8,500 tons.  In contrast, 1969 had a reduced  yield of 1,714.3 tons owing to frost damage. It i s of interest to compare these statistics with California production of approximately three million tons and Ontario with between sixty to eighty thousand tons. Value of the 1970 crop was $1,487,000 and for 1971 $1,568,000. The B.C. Grape Marketing Scheme applies to the province of British Columbia, but production is centered in the Okanagan and Similkameen Valleys. There are, however, a few scattered plantings, one in Agassiz and one in Claybum. To be a registered grower, one must fully plant three or more acres to grape vines. one dollar.  To become registered, one is assessed a one-time fee of  Currently registered growers number approximately 135 with  approximately 2,600 acres of vine crop.  This number i s up seven members  and approximately 200 acres since the formation of the Board.  Although  these figures do not indicate a substantial increase in acreagej most growers had planted a l i t t l e larger acreage to be able to register, while 9  Ibid., p. 1.  - 78 TABLE XI GRAPE PRODUCTION OKANAGAN VALLEY  Year .  Frost ?  Frost (but l i t t l e damange)  Frost (severe)  Frost (severe)  Frost  1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970  Acreage  424.6  572.0 702.0 790.1 1,011.2 1,187.1 1,591.3 1,864.3 2,064.3 2,232.8 2,340.2 2,413.1 .  *Highest t i l l 1961 Source:  B.C. Grape Marketing Board.  Pounds 271, 000 519, 000 517, 264 829 968 924 936 1,103 784 866 344 1,626 856 1,952 720 1,475. 168 2,233 304 1,735 ,768 2,535 ,008 .1,409. 824 3,263 808* 2,653 ,440 1,942 144 1,999 ,864 2,652 ,400 1,910 072 1,109 472 1,714 104 2,426 ,880 2,189 ,232 1,645 512 1,937 000 433 ,728 2,192 ,752 2,317 ,869 2,546 ,003 1,267 918 3,201 613 3,269 160 4,099 ,297 5,738 ,872 370 ,000 6,001 ,890 7,465 ,014 12,324 ,338 3,428 ,645 18,075 ,336  % Fresh . . . .% Processed  60 58 65 65 46 52 60 54 40 39 33 21 36 8 10 14 11 13 8.22 5.73 5.43  40 42 35 35 54 48 40 46 60 61 66 79 64 92 90 86 89 87 91. 78 94. 27 94. 57  - 79 some others had consolidated a few small plots. The operations of the Board are financed through a service charge. In 1970 i t was one dollar per ton, but increased costs in 1971 made i t necessary to increase this to  1.25 dollars per ton which amount i s deducted by the  winery. Powers Legal powers of the B.C. Grape Marketing Board are substantial as in the schemes of the other boards.  Price fixing, and establishment of terms and  conditions of sale of grapes for wine purposes are the main powers assumed by the Board.  Provisions also require that only licenced growers s e l l or  offer grapes to any winery, whereas wineries can buy only from the registered growers.  No winery shall buy grapes at a price below the minimum price or  prices fixed by the Board.  The Board may exempt persons from i t s provisions.  Organizational Structure Five registered growers are elected annually to the Board.  The election  for board members takes place from nomination from the floor at the annual meeting, which is to be held before the t h i r t y - f i r s t of March. Supply Management Since only a portion of the crush of British Columbia wineries is composed of British Columbia grown grapes, this would indicate a potential not.yet realized by British Columbia grape growers.  To meet the requirements of British  Columbia wineries i t is estimated that an additional 3,600 acres of grapes should be planted.  A price incentive would be needed to stimulate an increase in acreage  which is one-and-a-half times the current area.  Wine sales are increasing and  this would permit a s t i l l further increase in land being planted to grapes each  - 80 -  year, especially i f the grape growers succeed in obtaining a ruling similar to Ontario's which would stipulate that British Columbia wines be made of British Columbia grapes only. In this province the wineries are used to buying the lower price, lower quality grapes for blending or bulk and for the production of alcohol for fortifying their "B.C. Wines". The producers w i l l need government support to change this manipulation and have wineries use only British Columbia grapes in British Columbia wines. Price and Pricing Policy A unique situation which exists in this industry is that a market exists for a l l the product produced.  The B.C. Liquor Control Board has a stipulation  that the wineries must buy a l l the British Columbia grown grapes that are offered to them before they can import grapes from another production area. The B.C. Liquor Control Board has licenced six wineries.  If the wineries do  not abide by these regulations, the Liquor Control Board (being the only buyer of their product in British Columbia) can withdraw the offender's product from their liquor stores'shelves. The wineries also have a moral obligation to buy the British Columbia grown grapes because many varieties are used almost solely for wine making, and were planted at the request of the wineries. Although i t has the power to f i x price, the Board likes to negotiate price with the wineries.  The growers feel that the two, growers and wineries, are  dependent upon each other. The f i r s t year the Board was in operation, the wineries offered a five dollar increase for the two classes then in existence.  The Board did not  accept this offer and set a higher price which, they insisted, was not out of line with other producing areas.  The government, perhaps contravening  - 81 their own legislation, intervened and insisted the Board reset their price so that i t should be more in line with what the wineries could absorb.  A  feeling prevailed that the growers were taking advantage of their guaranteed market, and were putting too much pressure on the wineries. In 1971 a procedure was outlined that i f a minimum price could not be agreed upon, then the dispute could go to binding arbitration.  This settle-  ment occurred in the same year, but the results of the arbitration were unsatisfactory to the Board. was 2.8 percent.  The average increase granted through arbitration  Four different price classes resulted, although the Board  had advocated eight price classes. This experience, i t appears, has made the Board wary of arbitration and i t may resort to price f i x i n g . ^ The Board has i t s sights on achieving parity with Ontario growers. It should be noted in this connection that Ontario growers have a supportive legislation which requires that for Ontario wines 100 percent Ontario grapes be used.  New York State, on the other hand, upholds a stipulation that 75  percent local grapes be used for New York State wines.  11  In British Columbia,  however, although a l l British Columbia grapes offered must be used by the wineries before they are allowed to import, the percentage of British Columbia grapes used in the total crush i s decreasing.  The percentage decreased from  66 percent in 1970, to 41 percent in 1971, and i s estimated to decrease to 35 percent or less in 1972.  (Graph I)  Production in British Columbia of grapes-has remained f a i r l y static. growers are not putting in new plantings of the vine crop because of the meager returns of the venture.  10  B.C. Grape Marketing Board, 1971 Annual Report.  1 1  _ , A Brief to the Select Standing Committee on Agriculture, March 13, 1972.  The  Graph  I.  BRITISH  C O L U M B I A  P E R C E N T A G E  PERCENT 80  R  70  Source:  B.C. Grape M a r k e t i n g  Board.  O F  G R A P E S  T H E  T O T A L  U S E D ,  S H O W N  C R U S H  A S  A  - 83 Distribution of Returns The wineries are responsible for payment to the grower, and deducting the service charge for the Board.  The winery must give each grower, and  the Board, a detailed accounting of grapes delivered by each grower, within thirty days of final delivery, but no later than November 15th. The same timing applies to the net remittance to each of the growers.  By November 15th  a l l deductions on behalf of the Board must be remitted by the wineries.  - 84 CHAPTER VI COMMODITY GROUPS - POULTRY AND EGGS A. THE B.C. BROILER MARKETING BOARD  1  History Prior to 1961 the broiler industry followed a cyclical pattern so familiar for many agricultural products.  There would be a period of high productivity  with accompanying low prices forcing many growers to leave the industry or to switch their f a c i l i t i e s to other uses i f feasible.  Following this there  would then be a period of low productivity with high prices.  High prices  would then instigate many to put their resources into broiler production which would lead into a period of high productivity, and consequently low prices.  There was a constant flow i n and out of broiler production creating  unstable conditions for those who remained i n the industry. A plebiscite was requested by the growers i n 1961, with the majority voting in favour of a marketing board.  The Order-in-Council was passed i n  December 12, 1961 and the board Officially started operations on January 1st, 1962. General Description The B.C. Broiler Marketing Board has jurisdiction over a l l chickens which are under six months of age and are grown for their meat.  ^Personal interview with Mr. Ron Stafford, Secretary-Manager for the B.C. Broiler Marketing Board. British Columbia, The Natural Products Marketing Act, British Columbia Broiler Marketing Scheme, 1960. British Columbia Marketing Board, General Orders 1963, Cloverdale, B.C., June, 1963.  - 85 There are four classes of product as follows: (a)  Rock Cornish Game Hen - which makes up just over two percent of production (over a million pounds a year).  These birds  are marketed at about five to six weeks of age, and do not exceed two pounds four ounces live-weight. (b)  Junior Broiler - which are between six and eight weeks of age when marketed and must not exceed three and two-fifths pounds live-weight when marketed.  This class makes up  about 21 percent of total production. (c)  Regular Broiler - which means that class of product as defined in the B.C. Broiler Marketing Scheme, which are at least eight weeks of age and less than nine weeks of age. This class constitutes approximately 69 percent of total production.  (d)  Roasters - which are marketed at nine to fourteen weeks of age and weigh between five and seven pounds live-weight. This class constitutes approximately seven percent of total 2 production.  Total farm sales during 1971 were 15,525,000 birds, for a total eviscerated weight of. 42,030,000 pounds. (See Table XII.) The area covered by the B.C. Broiler Marketing Board is a l l of British Columbia.  Production is concentrated in the Fraser Valley and Vancouver  Island accounting for about 90 and 10 percent respectively. There is one producer in Terrace and one in Prince George but their volume is very small compared to the overall total. 2  B.C. Broiler Marketing Board, 1970 Annual Report.  - 86 TABLE XII BRITISH COLUMBIA:  Birds (*000)  CHICKEN MEAT PRODUCTION, 1963-1971  Weight ('000 lb.)  Value ($•000)  1971  17,374  49,130  15,169  1970  16,170  44,210  12,745  1969  14,478  41,128  12,777  1968  12,955  35,549  10,883  1967  12 826  35,658  10,668  1966  12,735  35,454  10,847  1965  11,132  30,685  9,048  1964  10,267  29,096  7,612  1963  10,732  30,814  9,229  Source:  v  Production of Poultry and Eggs, Statistics Canada, Ottawa.  - 87 Currently membership is made up of 123 registered growers. are roaster quota holders and ten are roaster permit holders.  Sixty more If we compare  this with membership at time of formation of the Board, we notice that membership has been almost halved from 250 registered growers.  Volume has,  however, increased to about twice that at the time of the establishment  of  the Board. Registration and licencing i s required of many segments of the industry. A schedule of those requiring licencing and the corresponding assessed fee is as follows: Growers - one dollar per annum Processors - fifteen dollars per annum Truckers - one dollar per annum for each vehicle Wholesalers - fifteen dollars per annum Hatcheries - fifteen dollars per annum Some r e t a i l stores in the interior are also required to be licenced. This requisite is relative to the import orders which were brought in by the Board in 1970 and shall be discussed in more detail later. assessed for retailers.  There is no fee  For each motor vehicle, building, or place of storage  operated, a separate licence is required. Revenue is received by the Board by means of licence fees, but also and primarily through the three-quarters of a cent which is deducted at the processing plant for each chicken. Promotion expenditures in 1970 totalled $35,801.02 for point-of-sale material, newspaper, magazine advertisements, recipe books, contests and 3 prizes, radio, television, and in-store promotion. 3 B.C. Broiler Marketing Board, 1970 Annual Report.  - 88 Powers As we look through the General Orders of the B.C. Broiler Marketing Board we see spelled out in detail the powers which the Board enforces which are derived from the B.C. Broiler Marketing Scheme. The Board can require any person or firm who grows the regulated product, or i s included in the marketing channel to keep and provide data on any aspect involving the regulated product. A licence may be required of anyone in some manner responsible for the regulated product.  The Board may stipulate the qualifications and the fee  required for such a licence.  The Board, essentially, has the right to cancel  such a licence.when Board orders are not complied with. The Board has the right to designate the agencies through which the regulated product i s to be processed, packed, stored, or marketed. a l l licenced processors, are agencies for the Board.  At present  The agencies receive,  process and market only the regulated product they are authorized to handle. They make the required deductions, a monthly statement (showing the amount of the regulated product received and from whom, the price paid and the amount of deductions for the Board).  No agency may handle i l l e g a l product unless  specifically ordered by the Board, and i t s product requirements must be filed at least six months in advance. The Board may establish quotas and set regulations as to how excess product will be dealt with. Any product kept, transported, packed, stored, or marketed in violation may be seized by the Board. A l l packaged chicken is required to be marketed in an approved container and have a printed tag or label stating "Broiler Chicken grown in British Columbia".  - 89 Organizational Structure The Board consists of three members, and has the authority to administer the B.C. Broiler Marketing Scheme.  One member i s elected annually. Members  of the Board are nominated from and elected by the B.C. Broiler Growers' Association.  The Association also elects the auditor for the Board and  determines the remuneration for the Board members. A l l processors are currently agents for the Board. Supply Management At the time of formation growers were allotted a quota of one bird every eleven weeks, per square foot of building space.  Since then quota has no  longer been tied to square footage. Now growers are allotted a quota, stated as a number of broilers that may be delivered every eleven-week cycle. quota may be a decimal fraction per square foot. is referred to as primary.  This  The original allotted quota  Since the original allotment, quota has been  increased on two separate occasions. Those holding a primary quota of five thousand birds or more were given an additional five thousand secondary quota each time the quota increased except those holding over three percent of the total primary quota.  Those growers holding less than five thousand were  given additional quota equal to the amount of primary quota they held each time the quota increased. A contract between processor, grower and hatchery i s signed and filed at the Board for each lot of "broilers".  In effect the agreement states  that the hatchery will deliver a set amount of chicks to the grower who will raise them and that the agency or. processor w i l l purchase from the grower a l l broilers raised from these chicks. terms and conditions of sale.  The contract also stipulates prices and  - 90 Quota levels can be changed at anytime. secondary quota and subsequently the primary.  Quota cuts affect f i r s t the Changes in quota affect only  growers at "egg set". Quota for a grower does not change during a contract. At egg set means the setting of eggs or incubating for a grower by a hatchery, only the percentage of the grower's quota as currently permitted by the Board, plus a four percent mortality margin. Transfer of quota is only approved by the Board i f : (a)  the transfer is to licenced growers with quota of less than 30,000 birds;  (b)  the farm is sold, provided the total quota of the'new owner is not more than three percent of the total primary quota;  (c)  in the case of secondary and roaster quota i t has been held three years, and only when the farm i s sold to a new grower (currently not registered).  The Broiler Board is trying to maintain the independence of the growers and maintain the smaller farm units.  Before primary quota i s transferred,  a letter must be signed by the person obtaining the quota that he receives no financial aid from a poultry feed or a poultry processing company, or a chick hatchery, or any person representing or having financial interest in a trade allied to broiler marketing. The Broiler Board has taken steps to permit new growers to enter the broiler industry.  New producers may purchase an existing farm or they may  obtain a permit to market four thousand roasters every 16 weeks.  If they  operate under permit for three years they may then obtain a roaster quota. The Broiler Board has control over product coming into the province through i t s import orders. Here the Board i s perhaps treading some unsteady  - 91 -  legal ground by assuming control over product grown outside of British Columbia, but has not been involved in any court cases on the matter. market imported product must be obtained from the Board.  Permission to  Restrictions demand  that packaging be approved by the Board, that labels should clearly indicate the origin of the product and that sale of the product has been approved in British Columbia. Price and Pricing Policy The Board in May 1970 established a new price policy for a l l classes of the regulated product.  Each class of the registered product is now priced  out separately according to i t s market condition (supply, demand, and quantity in storage) Prohibitions as to pricing in the general orders state that no product may be sold at less than the purchase price, or at less than the Board's current price.  No gifts may be offered with the sale of the regulated product.  The Marketing Board sets the price only at the producer level.  The price  is determined with the help of the recommendations of an Advisory Committee. The Advisory Committee consists of two growers (one of whom is a Board Member), two members representing the poultry processors, and an independent Chairman from outside of the Broiler Industry.  When the Board is contemplating a price  change (up or down) i t will give the Advisory Committee seven days notice. The Advisory Committee meets and discusses the issue and makes recommendations on price.  The Board is free to either accept or reject the recommendations.  A l l the producers throughout the province, however, receive the same price for the same quality and class of product.  - 92 Distribution of Returns It is the responsibility of the agency to make necessary deductions for the Board, to pay - as circumstances may require - the hatchery for the sale of chicks to the grower, and to return to the grower the remainder.  Payment  must be made to the grower immediately upon completion of processing of the "broilers". live-weight.  Returns to producers for cornish hens and broilers are based on Roasters are graded out in f i r s t s and seconds before calculating  the grower's returns. Policing The Broiler Board, in conjunction with the Turkey :*Board, have an inspector whose primary duties are checking transport orders. The Board has the power to inspect the books and records of a l l involved in the broiler industry.  In effect there seems to be l i t t l e need of this  practice and, consequently, i t is not done.  Nevertheless a good cross checking  of reports i s possible, because the Board keeps on f i l e copies of contracts between hatchery, grower, and processor. The processor sends i n a monthly statement and on this statement are the number of "broilers" delivered by each grower.  Included with the statement is the cheque with the assessment for  the deductions of three-quarters of a cent per chicken. It i s , of course, not very desirable to have a grower ship in excess of his quota.  According to the General Orders of the Board elaborate procedures  are devised to deal with birds produced in excess of quota.  The number of  birds a grower is producing in excess of quota, without the permission of the Board, will be deducted from his quota in the next cycle.  The Board has  the authority to cancel a growing cycle, i f the grower has defaulted in that he has produced too many birds in excess of his quota.  If a grower wishes to  - 93 ship the excess birds, he must in addition to the customary transport order also obtain a permit from the Board to market these excess birds to a licensed agency, and finally the grower must submit to the Board a cold storage warehouse receipt. Processed birds in excess of quota after processing must be kept separate from quota birds, and must be readily identifiable.  The intent of this  procedure is to market the excess without affecting the orderly marketing of the regulated product. Effectiveness One measure of the effectiveness of the Broiler Board is the change over time in the price of quota.  (The Board does not acknowledge that quota has  monetary value.) A survey of the last decade, shows that upon the establishment of the Board (1962), a quota was appraised by the growers at twenty-five cents a bird, but now this evaluation has risen to three dollars and twenty-five cents.  When a grower sells a farm, he i s selling a business which can generate  profits; meanwhile people are s t i l l investing in broiler production even at these high quota prices.  - 94 B.  THE B.C. EGG MARKETING BOARD  4  History The f i r s t plebiscite was held among egg producers in 1948 but was defeated.  In 1961 a second plebiscite was held but i t suffered the same  fate as the earlier one.  The theme for this second proposed plan was like  that of the B.C. Coast Vegetable Marketing Scheme. Emphasis was placed on central selling or single desk selling which brings with i t the resentment of the producer vendor.  When the eggs are collected at a.central location  and pooled, the producer vendor has no guarantee that he w i l l receive again his own eggs for marketing.  (Perhaps also a greater element of risk and  less f l e x i b i l i t y are brought about by a central selling arrangement.) second reason Mainland.  The  for this defeat was probably that i t entailed only the Lower  A producer could establish an operation just outside of Hope and  flood the Lower Mainland with eggs.  In 1962 there remained an uneasiness  in the egg industry, and agitation continued urging for the creation of a marketing board.  In May 1965 a committee was formed consisting of two  delegates from each of four associations:  the B.C. Egg Producers Association  from the Lower Mainland, the Okanagan Mainline Egg Producers Association, Vancouver Island Egg Producers Association, and the Independent Egg Industry Association from the Lower Mainland, the latter association represented producer vendors and other allied trades. This "joint pooling committee" was to-form a plan, making provisions for the consumer, egg producers, and egg marketers. 4 Personal interview with Mr. E. Morgan, Secretary-Manager of the B.C. Egg Marketing Board. British Columbia, The Natural Products Marketing (B.C.)Act, B.C. Egg Marketing Scheme, 1967. B.C. Egg Marketing Board, Standing Order 1970, Clearbrook, B.C., April, 1970.  - 95 Vertical integration was making great inroads into the egg industry during the years 1965 and 1966.  Feed companies and other allied trades were  financing egg producing units. The biggest t i e - i n involved a major chain store (acting as the egg collector, processor and distributor) an aggressive hatchery (with a good strain of laying hens),.and a feed company. these firms were building a twelve-barn unit near Abbotsford.  Together  Before the  Egg Board was established these three firms had already progressed oner.third of the way toward the completion of their construction, and as i t happened they did qualify for the second-largest quota.  The central prevailing concept  was that one had to be big to survive in this industry. Even small wholesalers were dropping off small shippers, but in turn they too were feeling the pinch. The third plebiscite was held in June 1967 and on this occasion 73 percent of the producers voted in favor of a marketing board. vertical integration was being f e l t .  Already the effect of  A secured market did not exist except  perhaps for some corporations with a direct market through their chain stores. There was chaoes on the egg market as prices tumbled.  In a two-week period  Grade "A" large-size eggs dropped as low as twenty-five cents per dozen. Initially the typical three-year cycle effects were s t i l l being f e l t . First, an eighteen month period would show high production with very depressed prices, with producers suffering losses.  The following six months would yield  reasonable prices, with the producers doing perhaps better than just break even.  Finally, the next twelve months would be a period of very good prices.  A three-year period would represent approximately two l i f e times of a laying hen.  During the period of improved prices and a slight shortage of eggs, the  producers would f i r s t moderately start to invest in layers.  A following period  of good prices and an acute shortage of eggs would subsequently induce producers  - 96 to invest heavily in laying chickens.  Of course when these were in f u l l  production, a glut would result on the market and the period of depressed prices would start. It was on July 13, 1967 that the Order-in-Council was passed, authorizing the formation of the B.C. Egg Marketing Board. General Description The regulated product under this scheme refers to a l l classes of eggs of the domestic hen. Production has climbed steadily to 1.833 million cases of eggs produced in 1971 and sold at the farm level for an average of 35.8 cents a dozen. (See Table XIII.) The area under jurisdiction of the Board includes a l l of the province of British Columbia.  The province is divided into three areas namely:  Vancouver Island, the Lower Mainland, and the Interior.  The scheme  stipulates a more detailed demarcation of the outlined areas. When the plebiscite was held in 1967, 600 producers registered to vote. Only 505 producers qualified for, and were issued quota.  The number dropped  rapidly the f i r s t year as the 1968 prices were s t i l l low.  Quota holders at  present number 360.  To qualify for quota the grower must own 500 or more  layers. Licencing and registration are required of the following: Registered Producers, Chick Hatchery Operators, Registered Grading Station Operators, Producer Vendors, Truckers (of ungraded product).  - 97 TABLE XIII B.C. EGG PRODUCTION AND AVERAGE PRICE AT THE PRODUCER LEVEL  Year  Total Production''' (cases)  2 Average Weighted Price at the ...... Producer Level  - million -  - */doz.  1963  1.2  33.8  1964  1.28  27.7  1965  1.365  33.1  1966  1.46  36.0  1967  1.683  25.8  1968  1.688  33.5  1969  1.733  38.4  1970  1.744  35.7  1971  1.833  35.8  Sources:  .  B.C. Egg Marketing Board. 2 Poultry Market Report, Agriculture Canada, Production and Marketing Branch, Ottawa.  - 98 The annual fee for each category i s a dollar per annum. A separate licence is required for each production unit (with over five hundred layers), each chick hatchery, each registered grading station, and each place of storage operated. Funds are received from the licence fees, but the major source of revenue originates from the levy on each dozen of eggs marketed, by the producer. A producer with less than 500 layers i s classified as a producer vendor. The Board requires that he keeps statistics on his production and because he also reaps benefit from promotions carried out by the Board, he i s also assessed one-third of a cent per dozen. Powers The Board has the authority granted under the scheme: - to establish the time and place at which the regulated product shall be transported, processed, packaged, stored, and marketed; - to designate the agency through which i t shall be performed; - to determine the manner of distribution, the quality, and grade of eggs at each stage; - to determine the charges that may be made by the Board for i t s services; - to institute a central marketing agency i f three-quarters of the registered producers favor the action; - to issue quotas; - to require a l l persons engaged in the industry to be registered and licenced and to f i x the fees payable, and cancel any licence for violation of Board orders, and to refuse to re-issue any licence for twelve months;  - 99 - to require a l l those in the channel from production to marketing to keep complete and accurate information; - to f i x price or prices to registered producers; - to authorize any agency to conduct pools; - to seize and dispose of any i l l e g a l product; - to promote the industry; - to make or revoke rules and regulations affecting the industry or orderly marketing; - to inspect books, premises, and vehicles.^ Organizational Structure The B.C. Egg Marketing Board consists of five members.  One member is  elected from and by the interior registered producers, one from and by the registered producers of Vancouver Island, and similarly three members from the Lower Mainland.  The member holds term of office for three years.  Remuneration to the Board is fixed by the registered producers on a per diem plus expenses basis. A chartered accountant i s appointed by the Board to audit the accounts of the Board annually. Before an application can be made to the Lieutenant-Governor in Council for any amendment to the scheme i t must be approved by not less than twothirds of the ballots returned. At present a l l chick hatchery operators, registered grading station operators, and producer vendors in the province of British Columbia are designated as agencies to receive and market the regulated product. For pool eggs the Fraser Valley Poultry and Egg Co-operative Association is the pooling Agency which i s authorized to conduct and operate a pool. 5  B r i t i s h Columbia, The Egg Marketing Scheme, 1967. op. c i t . , p. 4-6.  - 100 Supply Management An annual quota is allotted to growers based on their historical performance but also on estimated demand. The original quota was based on the period of June 1964 to 1967. twelve-month period.  From this period a producer could choose any consecutive The producer submits the invoices of returns from his  egg sales (as evidence to be used in determining actual production).  When the  producer was not able to supply information concerning his egg sales, another formula was established based on the number of chicks and feed purchased.  This  production volume will be later referred to as "pre-scheme production level". Some astute growers sensed at the beginning of 1967 that because of low prices and discontent, a marketing board would be formed, with i t s attendant power to issue quotas. chickens.  These growers had new barns built and f i l l e d them with  The previously mentioned formula would not reflect, however their  increased production capacity.  Consequently, a strong delegation made  representation to Mr. F. Richter,then the Minister of Agriculture for B.C., who advised as a form of appeasement, the provisional board to devise a formula to accommodate also these disgruntled producers.  As a result, a  twenty-eight day period in November 1967 was set aside, during which term everyone was to keep track of a l l his egg sales.  This month was selected,  because by this time a l l the hens that had been acquired as chicks before the Board was formed, should be laying. The amount of eggs marketed during this twenty-eight day period was then multiplied by thirteen to give a year's production and this volume is referred to as the "post-scheme production level".  Everyone qualifying for the pre-  scheme formula received 100 percent of that as his quota.  Some of the  growers who had expanded their production capacity would receive some additional  - 101 quota.  The quotas for these growers was calculated by taking the total  post-scheme production level and subtracting from this level the pre-scheme production level leaving a balance. This balance was multiplied by 72% to equate the estimated 1968 market demand to supply. The quota for each of these growers equals 100% of the pre-scheme production level plus 72% of the grower's share of the balance (post-scheme minus pre-scheme production level). Since the formation of the Board the market quota has not been totally fulfilled.  The estimated market demand was set too high.  It i s believed  that not until the end of 1972 will the market demand equal quota level. By 1973, producers may see an increase in estimated market requirements, and as a result an increase in quota might then be issued. Originally, no registered producer could secure a quota greater than five percent of a l l quotas issued.  On September 1968, for the purpose of  protecting the family farm, the Board issued an order precluding anyone from obtaining a quota of over 200 cases a week. Quota can be transferred only upon approval of the Board.  If certain  conditions are f u l f i l l e d , such as holding a below maximum quota, quota transfers will be approved on the sale of an egg production unit or sale of part or a l l of the laying flock.  Transfers of quota are confined to the  area in which i t was issued except for transfers from the Lower Mainland to other areas. No transfer i s approved i f advanced credit or loans are made in respect to such transfer unless from recognized agencies.  If the  receiver of the quota is not a registered producer he may be required to market his eggs for such limited purposes and time period as the Board sees fit.  - 102 Marketing quotas remain the property of the Board, but these quotas have no monetary value attached to them. There may, however, exist an intrinsic worth through the increased value of the egg production unit or laying flock. The Board may cancel a marketing quota i f Board orders or regulations are violated or i f the registered producer f a i l s to market the regulated product for one hundred and eighty days.  Quota may also be reduced i f the producer  f a i l s to market regulated product equal to at least 80 percent of his quota during two consecutive quota years. The quota may not be cut below the average of his annual marketings of the registered product unless there i s a general cut of a l l quota. Any increase in quota is f i r s t offered to those who hold a marketing quota of less than seventy cases weekly, and who apply for increased quota.  That  which remains is issued to others who apply. There are special provisions for those marketing hatchery eggs. Price and Pricing Policy The Board has two producer pricing arrangements.  One arrangement is the  pooling system currently in use in the Lower Mainland (and for some growers in the Interior).  The other system is the Differential Service Charge System  on Vancouver Island and more Northern B.C.  It is the policy of the Board to  try and maintain a steady price at the consumer level. Pooling:  The Board tries to equalize returns to producers for the same  grade and size of eggs. Weekly marketable quota i s used in pricing and i s simply the annual quota divided by 52.  Figure 1.  Egg Marketing Flowchart Weekly Production Excess - ungraded pool eggs dyed by the farmer sold by weight for breaking demand bid pools  Weekly marketing quota or such portion thereof as determined by the Board  Actual Sales  Unsold quota eggs Quota pool - graded eggs  - 104 Eggs in excess of weekly marketing quota or a percentage thereof as determined by the Board, are delivered to the Fraser Valley Egg and Poultry Co-operative Association, where they are pooled and bids are received for these eggs. The shells of these eggs are dyed by the producer, and therefore they can be used only for breaking. After this stage they are used in making melange for institutions, and in the production of powdered eggs, and other egg products. Quota eggs are graded and sized.  The Board sets prices for these eggs  every Friday morning for the following week, based on cross-country demand. Quota egg prices are the same in the Interior as i n the Lower Mainland, but "Vancouver Island prices are one cent higher, to compensate for transport differential. Unsold quota eggs, constitute the difference between weekly marketable quota or percentage thereof and actual sales. the Quota Pool.  These eggs are marketed through  Unsold quota eggs are transferred to the quota pool at five  and a half cents above the price set for that particular size and grade by the Board at the producer level.  These are then sold in other parts, at  whatever price obtainable, provided they are not used to jeopardize price to local producers.  In the event that any loss i s sustained in marketing of eggs  through the quota pool, money thus lost is paid by the producers participating in the quota pool on an equalization basis according to their volume of eggs of the size and grade concerned, marketed through the quota pool. Differential service charge: eggs.  One-third of one cent i s charged on quota  In areas outside of the pooling districts, however, a higher variable  rate i s assessed on excess eggs because i t costs considerably more to promote, advertise, and market excess eggs.  There i s a steady market for quota eggs,  but excess eggs require greater resources and energy to market at a s t i l l reasonable stable price.  - 105 Distribution of Returns A l l agencies are required to record and furnish to the Board information relating to each shipment of ungraded eggs received.  Every agency shall  deduct at the point of grading a fixed charge on each and every shipment marketed by i t .  At present, deductions for a producer total one-third cent  for every dozen of his weekly marketing quota. The Agency furnishes a statement to the Board showing: 1.  the producer's name, address and licence number;  2.  the number of units of registered product received or marketed;  3.  the price paid for them;  4. the amount deducted for the Board. Policing The B.C. Egg Marketing Board has two fieldmen which act as public relations men for the Board, but also as control officers.  Every authorized employee or  representative of the Board who discovers a product in violation of Board's orders may seize the product.  In dealing with these violations, the Board  follows the procedures of other boards.  The owner i s notified and may request  a hearing, after which the Board decides how to dispose of the product. Effectiveness Stability which has accrued to the egg industry of this province owing to the application of the pooling system to the Lower Mainland and to the differential service charge to other areas, has made the British Columbia egg industry the envy of other provinces of Canada.  Graph 2, showing the  weighted average price to producers at grading stations in different provinces, clearly indicates that the Egg Board was able to maintain the price at a higher and more stable level than those obtained in the pre-Board era.  - 106 -  Graph 2  WEIGHTED AVERAGE PRICE TO PRODUCERS AT REGISTERED GRADING STATIONS, 1966-1971 Average Paying Prices Weighted By Grade For E a c h Province Using One Key Point In E a c h Province For P r i c e .  CENTS/LB 50  By  Province  and  Year  B.C. Board formed J u l y , 1 9 6 7  —r—  —f— 1966  Source:  1967  Poultry Market  1968  Review , A g r i c u l t u r e  —I 1969  1970  Canada, Production and Marketing  1971  Branch,  1972  Ottawa.  - 107 C. THE B.C. TURKEY MARKETING BOARD History On August 9, 1966 an Order-in-Council was passed and the B.C. Turkey Marketing Scheme came o f f i c i a l l y into existence, after the required plebiscite was held among the turkey producers. In this area of production, too, farmers had been plagued by the same typical experience as the producers of other natural products: prices.  depressed  There was fear of the loss of independence of the family farm and  integration of the total industry.  There was fear of one processor and  one grower (both financed by the same company) dominating the turkey business. The B.C. Turkey Marketing Board has as a basic principle to practice supply management in the market place. The reasoning was that since the farmer uses l i t t l e statistical or managerial tools, a need ensued to establish some co-ordinating agency which would evaluate data relating supply to demand, thereby avoiding surplus and shortage situations.  It i s d i f f i c u l t enough to  deal with any natural product because of the problem of natural variability, but particularly so with turkeys because of the ever-present disease threat. Enforcement and compulsory aspects are, however, necessary as a safeguard in a producer grouping of this kind. The independent operators would otherwise, when it.was to their advantage, go in their own direction.  If they a l l did  this, the producers would be i n the same situation as before they voted for the. Marketing Board.  ^Personal interview with Mr. Kirk Stanley, Secretary-Manager of The B.C. Turkey Marketing Board. British Columbia, The Natural Products Marketing (B.C.)Act, British Columbia Turkey Marketing Scheme, 1966. B.C. Turkey Marketing Board, General Orders 1966, Cloverdale, B.C., Aug., 1966.  - 108 General Description There are three classes of turkeys, namely, the hens and toms which are the heavier classed birds and the broilers, or lights, weighing six to nine pounds eviscerated. The number of licenced turkey growers dropped to fifty-three in 1971 from sixty-four or five when the Board was formed in 1966. Volume of production in 1971 was 21,179,000 pounds which i s about nine percent of the Canadian Production (see Table XIV). grower per pound was about twenty-four cents. year.  Average prices to the  1971 was considered a poor  A normal year, would for the same production yield probab'ly about  10 or 15 percent higher. The Board has jurisdiction over a l l growers in the province who raise twenty-five or more birds a year.  There are about three or four commercial  growers on Vancouver Island, and a similar number in the Interior of B.C. Some of the licenced growers are corporate entities and some are individual farmers. The inducement to require licencing by a l l Boards is not so much the licence fee, as i t is the power to withdraw the licence and consequently the holder's permission to handle the product, should the Board's orders be violated.  It i s a way also for the Board to gather information on the flow  of the product including the imported product. The Board has the power to register and licence those that handle the product.  Growers have to acquire an annual licence for one dollar per year,  truckers two dollars per truck annually, processors fifteen dollars annually, and wholesalers who bring in the product from other areas are granted a licence at no charge.  - 109 TABLE XIV BRITISH COLUMBIA:  Birds C'000)  TURKEY MEAT PRODUCTION, 1961-1971  Weight ('000 lb.)  Value ($•000)  1971  1,646  21,179  7,476  1970  1,543  19,291  6,404  1969  1,298  15,982  5,258  1968  1,369  16,706  5,413  1967  1,492  17,932  6,240  1966  1,198  14,281  5,199  1965  866  11,031  3,938  1964  742  9,473  3,372  1963  539  7,131  2,425  1962  696  9,823  3,144  1961  662  7,782  2,646  Source:  Production of Poultry and Eggs, Statistics Canada, Ottawa.  - 110 The B.C. Turkey Marketing Board obtains i t s funds in small part from the licence fees, but predominantly from a levy of one-quarter cent per pound live-weight deducted by the processor from growers' returns. Powers The Turkey Board has the power to state where and when the regulated product can be brought to market.  Besides time and place, the Board can  stipulate quality standards over and above the Canada Agricultural Products Standards Act should i t so'desire. The Board can set regulations and issue sales quotas, require registration and licencing, and can cancel these for violation of Board orders. Moreover, price or prices can be fixed, at which the regulated product may be sold.  .  Organizational Structure The Board consists of three producer members. One position in the Board is voted for annually. Board members are elected by members of the B.C. Turkey Association.  The Association determines remuneration for Board members  and elects an auditor for the Board. The B.C. Turkey Marketing Board has not appointed an exclusive agency to handle the product of the producers, as presently a l l processors are considered agencies of the Board.  The growers are free to make arrangements with any  processor they can or choose to deal with.  But the Board is empowered to set  up a sole agency should one processor get an inordinate amount of power. The Board does not like to see one level get control of another level.  It  is the Board's policy to protect independents, and to maintain the viability of individual units in the industry.  Processors and feed companies often assist  a producer out of financial d i f f i c u l t i e s , and afterwards require that producer to contract  only with them, sometimes on a share cropper basis as i s frequently  - Ill -  found in the United States. The Board has no power at present to stop this practice, although i t feels that this i s not good for either party, because i t reduces efficiency and competition. Supply Management The Turkey Board i s very concerned with practicing supply management in the market place. The i n i t i a l sales quota to growers was'based on a formula with variables^of production over a period of time, and an individual farmer's physical capacity to produce.  This formula would take into account whether a  farmer would be producing his quota using three-quarters of a square foot per bird or three square feet per bird.  The former producer would be considered  a poor risk, whereas the latter may have his quota on the i n i t i a l  assignment  raised. Quota has since been raised upward periodically.  Delegates from the six  turkey producing provinces in Canada meet at their conventions where a gentlemen's agreement is made to regulate supply.  Through the national agreement an  attempt i s made to have supply and demand correspond.  This agreement can be  considered a fore-runner for the national marketing plan as now permitted under the new Farm Products Marketing Agencies Act.  In order that provincial marketing  boards can function, the inventory and demand situation should be in line. Canadian production for 1972 has been set at 185,000,000 pounds, which for British Columbia means 18,000,000 pounds, an amount just under 10 percent of the national total volume. The large amount of turkeys in storage during the year of 1971 caused depressed market prices, and therefore the projected production for 1972 is lower than usual. The Board sets the total quota and also the quotas for each operator. This year (1972) the total quotas are 752,000 light birds and 703,000 heavy  - 112 birds.  Quota is revised upwards or downwards based on market demand.  If there  is greater demand than the current total quota, the Board will issue a letter to a l l growers stating how much additional quota will be allocated.  Those  growers who would like to share i n the additional quota are asked to apply to the Board.  This usually means that those who have the extra physical capacity  available will apply. The increased total quota is then divided equally among those who indicate their desire to share in the quota.  The Board also may  withdraw quota from a producer who over a number of years has not produced turkeys, and has failed to notify the Board of his decisions or reasons why he has not produced turkeys. This behavior over a period of time makes planning for the Board d i f f i c u l t , and therefore the affected quota would be withdrawn. At"present, no dollar value i s attached to quota, and the quota i s not allowed to be bought or sold.  It can however be transferred, for example  when the father retires and the son takes over the farm. relinquish his quota and the son would apply for i t .  The father w i l l  Presently, one can  obtain quota only by purchasing or renting an existing turkey farm. The Board is contemplating to change the scheme with respect to the transferring of quota.  A need for f l e x i b i l i t y exists to keep up production.  Some farms are run-down, other existing farms no longer produce turkeys, and sometimes people like to s e l l part of the operation but not their homestead. Some alternatives to the present system are free trading on the market place, or having the Board act as sole vendor and consequently repurchaser of quota, or having the Board stipulate trading value for quota. A regulation for boiler birds states that no more than one-third of the quota is to be grown in each flock.  Three flocks must be grown a year unless  a grower wants to ship less than his f u l l quota.  For heavier birds, however,  - 113 i t takes 22 to 26 weeks to grow. these.  Generally the producers grow two flocks of  It is uneconomical to leave idle the large physical capacity required  to raise these birds. The grower is subject to quota maximum, namely 80,000 light or 40,000 heavy birds.  This is on a ratio of two lights to one heavy.  Two growers who  were producing more than this aggregate when the marketing board was formed are now protected by a special clause. Price and Pricing Policy  -  The Board fixes the producer price level based upon the national and local amount of turkey sales and storage levels. be any change in price.  The Board decides when there should  The processors are notified of the new estimated .price  and they will meet with the Board within ten days of receiving notice.  The  processors are a feed-back mechanism of the market situation since they are in close contact with retailers.  The negotiations are conducted in good faith,  since both parties realize they cannot survive without the other.  Usually the  Board's price adjustment is accurate, and negotiation may be continued for one class of bird only, i f the price is deemed by the processors to be out of line with the market forecast. The Board may revise their price adjustment schedule based on this information. There is a policy in effect to get away from turkeys being viewed as a promotional product.  The price of turkeys may range in the store from between  thirty-nine to f i f t y - f i v e cents.  Most marketing agencies will contend that  any product with a fluctuating price can't be sold consistently and well; therefore, the Turkey Board by promotion and advertising campaigns i s trying to establish the turkey as an acceptable year round product especially the broiler birds, which are comparable to the roasting chicken.  An added impetus  - 114 is the recent emphasis on barbecueing and barbecue products.  The Board feels  i t will sell more and have more steady sales i f the product i s not a promotional product.  With a constant price of, say, 49 cents the turkey may  become a normal part of the grocery purchases. Distribution of Returns It i s the responsibility of the processors to pay the grower and to deduct the charges ordered by the Board.  The Board issues orders to the processors  on producer prices for the different grades and classes of birds, as well as establishes and determines what charges to deduct for the Board's operation. Although the Board has the power to f i x prices at various levels, i t only fixes prices at the level easiest to determine, namely, the producer level. It i s felt that the processors and retailers will take a standard mark-up. Policing A reasonable compliance with quota allotments is ensured.  The Board can  keep records of movements of birds through available statistics from hatcheries, growers, processors, and wholesalers.  Processors must send reports to the  Board every month along with the one-quarter cent per pound deduction. Production of the total industry and of the individual producers is reviewed for variance from quota figures.  If an individual's production  variance over his quota i s excessively high compared to the industry average, his product will be seized, processed, and given to a charitable organization, or the product may be frozen and stored for a period of perhaps six to nine months until the demand relative to supply i s up.  The producer's profit  dwindles or disappears because i t has been absorbed in storage costs during this period of time.  Should the industry variance be large, the action on  - 115 the individual producer would be tempered. Another form of policing is enforced by the inspector who is hired in conjunction with the B.C. Broiler Marketing Board.  The inspector spot checks  at plants, spot checks trucks, and may be present at a farm when a truck is being loaded.  As a precautionary measure, the inspector does not enter the  area where the birds are grown because of fear of disease transmission.  The  inspector's task is to ensure that the Board orders are complied with, particularly i t s transport regulations. Effectiveness Management feels that the Board is only scratching the surface of what can be done.  The Board is now entering into a phase II, a new range of responsibility  and effectiveness, and is placing less time and energy in the control aspect now that the Board is firmly established.  The Board proposes to engage into  planning and exercising supply management, which activities include gathering and maintaining relevant statistics and developing marketing models.  - 116 CHAPTER VII COMMODITY - OYSTERS THE B.C. OYSTER BOARD  1  History Prior to the formation of the B.C. Oyster Board there was in the oyster industry quite a large turnover of growers.  Growers would come  in for about seven or eight months and then they would be out of business. These fly-by-nighters would operate on price, making a fast profit, but they did not s e l l a quality product. A plebiscite was held among oyster growers in 1964.  An Order-in-Counc  was passed on December 17, 1964, but the Board did not become operative until March 1965. General Description The general regulations for the B.C. Oyster Board were passed by the Order-in-Council and gazetted, and i t is probably the only Board in the province having received this distinction of o f f i c i a l publication.  These  regulations define the regulated product to mean any oysters grown in, processed at, or transported from the area to which this scheme relates. The area consists of the whole Province of British Columbia. Pollution of the intertidal areas where oyster beds 'are found has forced shifts in the main growing areas.  The Boundary Bay area at one  ^Personal interview with Mr. E. Timothy, Chairman of the B.C. Oyster Board British Columbia, The Natural Products Marketing (B.C.) Act, British Columbia Oyster Marketing Scheme, 1964. B.C. Oyster Board, British Columbia Oyster Board General Regulations, Nanaimo, B.C., Gateway Printers Ltd., January 1968.  - 117 time produced 40 percent and even up to 70 percent of the total production, but now commercial oyster production has stopped there.  The main production  then shifted to Ladysmith Harbor with 40 to 45 percent of production, but i t , too, i s now down to as low as 22 percent.  Currently the main area is  Fanny Bay with about 40 percent of the production. The Oyster Industry in this province started about 1942 with about 5,000 to 7,000 dollars of production.  1965 was the highest recorded year  with the producers grossing 890,000 dollars.  However, after that peak year,  competition was felt from Japan and production f e l l to 560,000 dollars in 1970 and 600,000 dollars in 1971.  The Japanese are currently forced out  of the exporting market because of disease in the oyster beds and also because of pollution of certain water areas. The B.C. growers are currently exporting about 100,000 dollars through their Co-operative Agency to such areas as:  Singapore, England and Ottawa.  Some growers are also selling the largest share of their production to a processing plant in Seattle.  Production in the last three months of 1971  shows an increase of 50 percent over the same months of the year before. If this trend continues the oyster industry could become a million dollar industry in 1972. The number of producers in the industry has stabilized since the Board was formed.  In five years perhaps five growers have quit and about five  new ones have started up.  Eighty to eighty-five leases for oyster growers  have been issued by the provincial government.  Of these, however, only  about thirty-five are used by the growers who make a l l or part of their living in the oyster industry. The remaining holders use the lease more  - 118 for the foreshore protection, and to keep others from trespassing and digging oysters and clams in front of their waterfront property.  Of the  35 growers, 22 registered growers have their own shucking plant while at any one time only nineteen may be operating. The cost of leasing oyster property is 10 dollars per acre plus about 8 or 10 dollars in taxes. Licence can be withheld from anyone whose licence has been cancelled by the board or who has been declared bankrupt within the last six months. By definition in the scheme a grower-packer is any "person, firm or corporation producing, processing or marketing the regulated product whether to wholesalers or retailers or otherwise."^  Any person holding and operating  an oyster lease of one acre or more in British Columbia would be included under this definition.  Every grower-packer of the regulated product is  required to pay an annual registration fee of 15 dollars.  He must also  pay a monthly licence fee of one percent of his total sales of the regulated product. A wholesaler of the regulated product is required to pay an annual registration fee of 20 dollars.  A grower-packer who acts as a wholesaler  of the product shall also pay an annual wholesaler's licence fee of one percent of such sales, or 20 dollars which ever is the lesser. The Board is financed through the licence fees mentioned above.  The  operating expenses of the Board are small since no remuneration is paid to the Board members, only out-of-pocket expenses which approximate 100 dollars per year per member. The Board did, however, commission three research projects conducted by research consultants. 2 B.C. Oyster Board Regulations, op. c i t . , p. 1.  These studies were:  - 119 1. Problems of the Oyster Industry; 2. Economics of the Oyster Industry; 3. A study of Oyster Marketing. Powers Although the Board was granted considerable authority under the B.C. Oyster Marketing Scheme, the board i s mainly a regulatory and enforcing agency of the Oyster Growers' Association.  The Board has, characteristi-  cally, the powers to promote, regulate and control the transportation, packing, storing and marketing of oysters. The powers actually .used by the Board are spelled out i n the general regulations.  These are:  1.  licencing of the grower-packers and wholesalers;  2.  setting of minimum prices at the producer level for the regulated product, ensuring that containers, seals and tags for bulk soup oyster are supplied or paid for by the purchaser;  3. ensuring that the minimum prices from grower-packer and wholesaler to other than licenced wholesalers shall be 20 percent above minimum' prices from grower-packer to wholesaler; 4.  ensuring that a l l sales of the regulated product made by grower or wholesaler shall be recorded and documented by invoices;  5. determining the time and conditions of payment by wholesaler to grower-packers;  - 120 6.  cancelling the licences i f Board orders are violated;  7.  requiring a statement of sales by grower-packers and records of accounts by wholesalers be supplied upon demand of the Board.  Organizational Structure Only members of the B.C. Oyster Growers' Association are allowed to elect Board Members, and only members of the Association are allowed to be elected to the Board.  The Board consists of three members of which  one member is elected each year.  The B.C. Oyster Board basically is a  regulatory and enforcing agency of the Association.  The Association  makes recommendations to the Board, which the Board carries out.  So  far the Board has not gone beyond the wishes of the Association. Nineteen of the twenty-two registered growers belong or have shares in Gulf of Georgia Co-operatives Association which packs and freezes oysters for export at the Cold Storage Plant in Qualicum Beach. A l l labour at the plant is done by the growers. is hired.  Only a bookkeeper manager  Orders to the co-operative are generally rush orders and are  allotted to growers generally on a system of each receiving roughly what he can handle.  The growers meet once a month and, although they are  competitors, they agree on a sharing arrangement between them. Supply Management The B.C. Oyster Board does not issue marketing quota nor does i t have plans to issue such quota in the future.  The Board does not fear large  corporations moving into the oyster business.  A large corporation sold  out when i t had been producing approximately 200,000 dollars worth of  121 oysters.  Three other companies have tried to produce on a large scale  for about twelve to fifteen months but then dropped back to an average scale of operation.  There is much variability between oyster beds, and  at this stage much depends on t r i a l and error.  This industry is not  suitable for large corporations, but there is a future for small independent operators putting out a quality product. Price and Pricing Policy Price setting is basically subjective in that i t relies heavily on the growers intuition.  When they get together, the growers will discuss price,  profit, and demand, and will f i x a price on the product according to these factors.  Since the Board has been formed there have been four price  increases of four percent each. One policy clearly stipulated in the general orders is that the wholesaler must charge a twenty percent mark-up, or i f he sells to another wholesaler he must make certain that before i t reaches the retailer level a twenty percent mark-up is charged over the grower-packer price. Similarly, this regulation applies too i f the grower sells to retailers and acts as his own wholesaler.  This regulation protects the wholesaler  from being undercut and may act as an incentive to promote oysters. Distribution of Returns In the general orders i t is specified that accounts payable to growerpackers from the wholesaler become due and payable within two weeks after the invoices have been received.  Sales must be recorded and documented,  and invoices must be kept by the wholesaler and grower-packers. When demanded, duplicates must be supplied to the Board.  - 122 Growers must keep a statement of sales of the regulated product for the previous month, stating the invoice number, consignee, price, quality of the regulated product and total sales of the month. The Fisheries Department also requires information on sales, consignee and amount of each sale. Agricultural Products Marketing Act Unlike the products of other Boards, oysters are not an agricultural product, and therefore the oyster Board can not obtain Federal recognition. But since i t i s a natural product i t does f a l l under the B.C. Natural Products Marketing Act.  In effect this means that the Board has no power  outside the province but only within.  The Board has no jurisdiction  over products passing out of the province, and i t can not set a minimum price for products passing out of the province. Policing Each day sales are recorded, and a statement of sales by the grower as well as records of accounts of the wholesaler must be submitted to the Board on demand. The form on which the sales are recorded also f u l f i l s requirements for the Department of Fisheries.  If the Board receives no  record sheets, the Board may send the bookkeeper to check the books. The twenty-two registered growers can not really afford any other form of policing.  - 123 CHAPTER VIII COMMODITY GROUP - VEGETABLES A.  B.C. COAST VEGETABLE MARKETING BOARD  1  History The B.C. Coast Vegetable Marketing Board i s one of the longest established marketing boards in British Columbia, dating back to 1935.  Great d i f f i c u l t i e s  were experienced by the growers as returns to the producer were depressed in the early 1930's, even to the point of being below the cost of production. Voluntary price control and co-operative selling failed, as did many voluntary marketing co-operatives, because a minority used the protection of the price umbrella provided by the voluntary organization and then cut their prices to below the set price.  The minority were thus reaping the  fruits of the others' efforts but were ignoring their own responsibilities. The Natural Products Marketing (B.C.) Act which came into effect through the government of British Columbia, urged by the petitioning of the farm organizations, provided the possibility for a marketing power with compulsory one-desk selling. The B.C. Coast Marketing Vegetable Board was formed in 1935 after a plebiscite was held which showed that a majority of growers were in favour of a marketing board.  Crops included under the jurisdiction of the Board at  the time of formation were potatoes, carrots, cabbage, beets, parsnips, •^Personal interview with Mr. E. Gilmore, Secretary of the B.C. Coast Vegetable Marketing Board. British Columbia, The Natural Products Marketing (B.C.)Act, B.C. Coast Vegetable Scheme. B.C. Coast Vegetable Marketing Board, General Orders (1960), Richmond, B.C., March, 1960.  - 124 onions and turnips.  The majority of growers of a particular crop must be  in favor before other crops can be added. for example, processing peas, in 1954.  Later other crops were added;  A plebiscite may be held when  requested by growers, as in 1938 and in 1953; however both times the majority of growers favoured controlled marketing as shown by the voting 2 results of 68.8 percent and 90.1 percent respectively.  This outcome  in addition to the fact that only two plebiscites have been held during the Board's existence, may indicate that as growers' experience with the Marketing Board increases so does their satisfaction with this method of marketing. General Description Since formation of the Board, the number of products under the B.C.. Coast Vegetable Marketing Board control has increased, and now includes besides the products mentioned above: lettuce,as well as green peas, corn, and bush beans for processing and strawberries for manufacturing. At the present time there are two Vegetable Marketing Boards in B.C. The B.C. Coast Vegetable Marketing Board has control of the area west of Hope, (not including the Pemberton Valley) and Vancouver Island. The number of producers under the jurisdiction of the Board i s appoximately as follows: 550 licenced growers on the Lower Mainland, and 140 licenced growers on Vancouver Island. Of these approximately five-hundred growers produce for the fresh market, and the remainder produce for processing; i t should be mentioned at this point  B.C. Coast Vegetable Marketing Board, Review of Commencement and Operations 1935-1960, Richmond, B.C.  - 125 that here some overlapping occurs as some producers grow for both markets. Total fresh market product sales under the Board Agencies were: Vegetables and potatoes Lettuce Processing Crops  55,790 tons 732,660 dozens 39,768 tons  for a total value of $9,563,660 The Board requires registration and licencing.  For growers the licence  is one dollar per annum; processors ten dollars per annum; truckers one dollar per annum for each vehicle operated; and wholesalers twenty-five dollars per annum for each place of business operated. In order to meet an annual budget of approximately $45,000 for the Board (this includes $200 per month for each board member and their travelling expenses) and to enable them to handle a volume of about 43,000 tons i t was deemed necessary to collect fees in the form of an agency licence amounting to one dollar per ton or five cents per hundred-weight of product sold. Powers The Producer Board has the; power to regulate the time and place for marketing the regulated product and to designate Agencies for handling and marketing.  The Board makes orders as may be necessary from time to time in  respect to a l l phases of the industry, such as packing, transporting, storing, processing, advertising and promotion, and actual marketing. the authority: 1. to require registration and licencing of various sectors dealing with the regulated product; 2. to f i x the charges which the Agencies may charge the grower; 3 B.C. Coast Vegetable Marketing Board, 1970 Annual Report.  The Board has  126 TABLE XV SALES BY AGENCIES OF THE B.C. COAST VEGETABLE MARKETING BOARD (a)  B.C. Coast Vegetable Co-operative Association Fresh market sales  907,818 cwt.  Value  $ 3,319,819  Processing crop sales  795,360 cwt.  Value  $ 4,688,612  1,703,178 cwt.  Value  $ 8,008,431  732,660 doz.  Value  $  831,569  7,420 cwt.  Value  $  22,260  200,560 cwt.  Value  $  701,400  1,115,798 cwt. (732,660) doz.  Value  $ 4,875,048  795,360 cwt.  Value  $ 4,688,612  Total sales (b)  Cloverdale Lettuce Co-operative Lettuce  (c)  Port Potato Company Fresh market  (d)  Island Vegetable Co-operative Fresh market  Total sales four agencies: Fresh market (plus lettuce) Processing crops Sales value under Agencies  Source:  $ 9,563,660  B.C. Coast Vegetable Marketing Board, 1970 Annual Report.  - 127 3.  to set the prices for which the regulated products maybe sold;  4. to supervise and authorize methods for pooling returns; 5.  to establish and enforce basic delivery quotas;  6. to require transport permits (such as tags or written permits); 7. to exempt growers in out-lying areas from provisions of the Board or to approve other direct sales methods by growers in these areas; 8. to require the keeping of books and records (in English) relating to production, packing, storing, transporting and marketing of regulated product. Organizational Structure Four Board members are voted by secret ballot by producer members. In the context of regional representation, the Island producers vote annually for one man to represent them, whereas the Lower Mainland growers vote for two men (one each year). A l l process crop growers vote for one representative.  The four-member Board sets regulations (such as regulations  for establishment and transfer of quotas, and grade standards) and enforces these regulations.  The Board also makes representation to government when  i t deems i t necessary; for example, when i t wants, a surtax on imports. The Marketing Board has designated four agencies to handle and market the regulated products.  The B.C. Coast Vegetable Marketing Co-operative  Association is designated the sole agency through which the regulated products grown i n the Lower Mainland (District I) i s to be packed, stored or marketed.  Figure 2.  Diagram of Administrative Organization  Provincial Marketing Board B.C. Coast Vegetable Marketing Board (4)*  Processed Products  Fresh Products  District I § II (1)  District I (2)  District II (2) 00  negotiate with processors and growers  B.C. Coast Vegetable Co-operative Association  *District Board Members  Cloverdale Lettuce § Vegetable Co-operative Association  Island Vegetable Co-operative Association  Port Potato Co. Ltd.  - 129 A separate Agency exists for lettuce, however, namely The Cloverdale Lettuce and Vegetable Co-operative Association, through which i t must be packed, cooled, stored and marketed.  Similarly, Island Vegetable Co-operative Association is  the sole Agency for the Island except in the case of potatoes which are grown in the Alberni Valley west of the Beaufort Range, where Port Potato Company Ltd. is-the sole agency for potatoes. Some of the product is packed and graded on the farm; however, the root crops must be graded, washed, and packed at the agencies' premises, to ensure uniform product and supply.  If, on the other hand onions, were handled  completely at the agencies' premises they would decay quickly i f stored in conjunction with the washing operations. Because of their hygroscopic nature onions pick up moisture from the air.  Sometimes also product is stored on the  farm i f only a limited number of producers are involved because grade quality standards are easier to control and a shipment i s quicker to assemble than i f a large number of producers are involved. The Board also does some research on foreign markets and their potential for the regulated product.  The Board and the Agencies are involved in promotion.  For instance, several advertising campaigns were carried out by the Mainland Agency to assist the movements of both vegetables and potatoes at times when competitive areas were flooding the local markets. The Board is also involved to a lesser extent in experimentation in production, but does not involve i t s e l f in extension (advising on production, and the use of f e r t i l i z e r s , or other chemicals) because of the efforts and ready availability of technical aid from government departments and private companies.  The Board does, for example, run some t r i a l s with a new variety  of carrots on i t s suitability to this area.  Some of the Agencies have test  - 130 kitchens and try to improve the marketed product. The Marketing Board i s involved in price and contract negotiations for certain crops.  Because the Combines Investigation Act forbids collusion or agreement which  eliminates competition between elements within the marketing channel, processors and growers are not permitted to meet directly and set the price which the one group shall pay the other.  Therefore the Marketing Board, which i s exempted  from this legislation, i s included in the negotiations on price and terms and conditions of sale for processing crops such as peas, bush beans and strawberries. Supply Management Quotas are issued for a l l crops except processing crops as a means of regulating the flow of regulated product on the market. on production but on sales.  Quotas are not enforced  Quotas for an individual producer are based on the  average of his previous five years delivery performance.  The purpose of this  measure i s to stop speculation and to avoid uncontrolled dumping of surplus product on an already saturated market, causing a downward spiral of sales prices.  Overproduction would normally follow a period of high prices.  Quotas are a means to an equitable distribution of markets.  So long as  demand exceeds supply, no quotas are put into effect as is usually the situation in the beginning of the harvest season.  Once quotas are put into effect growers  are permitted to ship part of their quota, say twenty-five percent.  Once the  growers have a l l had a chance to deliver twenty-five percent of their quota, another percentage i s allotted, until a l l the quota has been delivered. If the Board feels there i s s t i l l a demand, then the Board will consider taking in production in excess of a total quota even from growers who do not have a quota.  - 131 Quota cannot be bought or sold at the present time, nor i s i t attached to a farm but to a grower.  It i s transferrable, however, and should a grower  quit production, and should his farm no longer be used for growing crops, that quota goes back to the Board and i s allocated to new growers and those operating below economic efficiency. Quotas are an effective means of preventing large syndictes from controlling production, and are also an effectual way of preserving the independent, familysize farm^ A committee is presently studying quotas and quota transfers.  The Board  recognizes that quotas have an intrinsic value and that a grower who builds up a large quota should receive some compensation.  Some suggestions are that the  Board buy back quota and allocate and sell i t to other growers, or that the Board only set the price at which quota may be traded. Price and Pricing Policy The Board has delegated to i t s Secretary-Manager the power to set prices for the regulated products on day-to-day transactions.  The manager has daily  contact with a l l areas that may affect the Board's sales; he also remains informed on the conditions of demand and supply, including when the next crop will be available to market.  Especially in this industry with i t s quick and  frequent price changes some almost instantaneous decisions must be made. For example, i f a buyer from Manitoba phones up and asks i f the B.C. Coast Vegetable Marketing Board will meet the price of Texas potatoes he wants an immediate answer because i f the Board will not meet the price, the potential buyer will hang up and phone immediately another shipper. 4 "Family farms are the most desirable form of farming operation. Economic studies and practical experience indicate that family farms are also the most efficient." See Canada Department of Agriculture, News, J u l y 14, 1973, A statement by the Federal Agriculture Minister, Hon. H.A. Olson.  - 132 The B.C. Coast Vegetable Marketing Board uses a differential price system because i t faces different competition in different l o c a l i t i e s .  For instance,  in Winnipeg the Board's products may have to compete with the Virginia potato price whereas in Alberta and Saskatchewan i t s products may have to compete with eastern Washington's.  In Vancouver a better price can be obtained for  the Board's products because the transportation costs are so much lower than to more distant markets.  The Board, however, has a greater supply of each  product that the Vancouver market will take.  Returns to the growers are  pooled and a l l growers receive the same price for their product, regardless of where their particular product had been shipped. If the Secretary-Manager makes a large price change, a written report i s immediately made up for the Board members explaining the reason for the change. The Board keeps track of movements into the Vancouver market of produce arriving from other areas:  the Interior of British Columbia, other provinces,  or the United States. The market share remains a good indicator whether the prices are too high or too low. If the B.C. Coast Vegetable Marketing Board's average market share i s 70 percent and i t suddenly jumps to 90 percent this would indicate the price i s too low; similarly a 50 percent share would indicate the price i s too high, relative to imports. The Scheme gives the Board the right to determine the spread which the dealers may add to the price paid by them. Although the Board, i n effect, only sets the producer price, i t does stipulate that no person may resell the products for a price below the price he paid for them, and thus i t guards against the use of the regulated product as a loss leader. Distribution of Returns The Agency invoices the goods, collects the money, conducts pools and makes  - 133 returns to the growers by the fourteenth of the month following the receipt of the produce from the growers, and makes the statutory deductions. Each grower then receives his share of the total proceeds in relation to the amount of variety, size, grade and class of regulated product delivered by him.  Returns  are held until the fourteenth of the following month because by the tenth or eleventh there is usually s t i l l a remainder of the previous month's product in the warehouse. Policing Policing is conducted to ensure that marketing and transporting of the regulated product is performed according to the Board's regulations, and to ensure that the agencies are able to operate as sole selling agents.  Wholesale  salesmen of produce are in a position to exercise an effective form of policing. A salesman will become suspicious i f a formerly steady customer suddenly stops purchasing vegetables from him.  If other customers in an area act similarly,  the alerted salesman will check the customer's premises for i l l e g a l product (such as bags without tags).  In the event he finds clandestine produce, he  notifies his superior who, in turn, will notify the Board. The Board has an inspector on the road (usually a retired R.C.M.P. officer) with a radio-controlled car. This inspector has the close co-operation of the Royal Canadian Mounted Police and the city licencing department.  His function  consists of checking trucks and premises for i l l e g a l product. In practice, repeated warnings are usually given because seizure, and a court battle, are bad publicity for any marketing agency.  In the event of a  seizure, a detention tag is applied to the seized product and i t is delivered to the Board or an agency's warehouse.  The owner or person in charge of the product  is notified of the seizure and he has ten days to request a hearing with the  - 134 Board.  After the owner has been heard, or when no notice requesting a  hearing i s received, the Board may return the product or s e l l i t through its agency for the owner, or dispose of the product - as i t sees f i t - by sale or otherwise.  - 135 TABLE XVI ANALYSIS OF B.C. COAST VEGETABLE COOPERATIVE ASSOCIATION'S SALES  100 lb. Sacks  Settlement Value $  1970 Average Price  1969 Average Price  Per 1:wt.  Per 1Cwt  Sales - April 1, 1970 toMarch 31, '. 1971 Gems No. 1 Gems No. 2 Whites No. 1 Whites No. 2 Processing Potatoes Early Potatoes Early Potatoes - Export  96,595 .5 104,235 .5 133,227 .9 194,663 8,248 83,635 .5 23,488 .5  $  TOTAL - Potatoes  644,093 .9  $ 2,091,659..68  Beets Cabbage Carrots Onions Parsnips Turnips TOTAL - Vegetables POTATOES VEGETABLES = Sub-total Miscellaneous culls Import potatoes Import vegetables TOTAL  335.580..74' 274,655..17 456,521.,52 488,867..11 14,419..55 395,638..91 125,976..68  3,686 62,798 .65 69,460 .03 74,064 .5 690 .2 33,008 .25  21,102..18 339,520..46 317,052..50 302,919..50 6,556..65 172,120.,96  243,707 .63  $ 1,159,272..25  644,093,.9 243,707 .63  2,091,659.,68 1,159,272.,25  887,801,.53  3,250,931.,93  3,765, 2,990, 13,261,.6 907,818,.13  34.,85 12,817.,50 56,035.,10  $ 3 .47 2 .63 3 .43 2 .51 1 .75 4.73 5 .36  5 .72 5 .41 4.56 4.09 9.50 5 • 21  $ 3 .53 2 .92 2 .94 2 .50 1 .80 3 .47 3 .62  5 .00 4.98 5 .49 4.90 9.00 5 .41  .09  $ 3,319.819.,38  - continued -  .35  - 136 TABLE XVI: ANALYSIS OF B.C. COAST VEGETABLE COOPERATIVE ASSOCIATION'S SALES (continued)  1970  1969  1968  1967  1966  32,205 184 3,140 3,473 3,703 35 1,650 2  32,446 190 3,128 2,930 3,392 6 • 1,207  29,632 227 2,546 2,699 3,489 41 987 108  23,233 196 2,179 2,649 2,210 59 952 431  28,579 183 2,468 2,709 1,647 84 813  44,392  43,299  39,729  31,909 '  36,483  150 663  419 383  564 426  482 20  45,205  44,101  40,719  32,411  Comparative Sales - Tons Potatoes Beets Cabbage Carrots Onions Parsnips Turnips Undergrade carrots LOCAL Import potatoes Import vegetables TOTAL  Source:  -  -  -  55  36,538  B.C. Coast Vegetable Cooperatve Association, Manager's 1970 Annual Report.  - 137 B.  B.C. INTERIOR VEGETABLE MARKETING BOARD  5  History The Interior Vegetable Marketing Board was originally established in 1935. During the legal turbulence when the federal and provincial governments were battling about jurisdiction over marketing of agricultural produce, the Board had virtually no power of control and markets were declared free and open. The present scheme was approved by the Order-in-Council i n 1939, after the B.C. Marketing Act was clearly established. Besides the legal problem the Board faced during i t s infancy, i t experienced other d i f f i c u l t i e s .  The area under regulation is widely dispersed with geogra-  phical pockets of production. The Board's regulations cover a wide array of products, some of them produced in small volume in isolated areas.  Because  of the dispersion of production areas a wide variation in freight costs from producers to the markets existed.  A Freight Equalization Fund was set up by  the Board for several vegetables to equalize opportunity and freight charges throughout the Interior.  As wide variation in climate between the north and  south meant different harvesting times and different marketing opportunities, the earlier southern crop had distinct advantage over the later crops. It became evident that policies had to be developed to satisfy a l l areas. General Description The Interior Vegetable Marketing Scheme applies in the southeastern portion of the province. The geographical boundaries are specifically set forth in the  5  Personal interview with Mr. F.N. Magee, Secretary-Treasurer of the B.C. Interior Vegetable Marketing Board. British Columbia, Natural Products Marketing (B.C.) Act, British Columbia Interior Vegetable Scheme, 1939. B.C. Interior Vegetable Marketing Board, British Columbia Interior Vegetable Marketing Regulation, June, 1969.  - 138 Scheme and include the Cariboo to just north of Quesnel, Pemberton Valley, Kamloops, Okanagan, Similkameen Valleys and the Revelstoke, Slocan, and Creston region. The number of growers in this wide-scattered area has dropped drastically since the Scheme was f i r s t established under the Natural Products Marketing (Canada) Act.  In the earlier years of the Board's operations there were over  1,000 growers cultivating more than 10,000 acres.  Currently 150 growers  produce under the Scheme. The sons and daughters of the growers, many of whom are of Japanese origin, are receiving a good education and are frequently not attracted to the long, arduous hours required from a vegetable grower. The high capital requirement in this industry i n conjunction with the often low unstable returns only hastens the decline of the vegetable industry i n the Interior. The regulated product "means vegetables of a l l kinds, and includes field tomatoes, peppers, lettuce, field cucumbers, cantaloupes, corn, cabbage, celery, onions, parsnips, squash, pumpkins, citrons, marrow, asparagus, eggplant, peas, beans, potatoes, rhubarb, and a l l other garden vegetables, and any class, variety, grade or size thereof grown in the area".  6  The Board requires every producer of regulated product and every owner of land on which the regulated product i s grown, to register. To market vegetables the Board has licencing regulations.  A licence i s  required of producers who sell tag vegetables (cucumbers, onions, peppers, potatoes (early), and tomatoes, referred to as tag vegetables during a particular period of the year) to a r e t a i l dealer, roadside stand operator or commercial consumer within the same marketing zone.  The licence i s free of charge, but  B.C. Interior Vegetable Marketing Scheme, 1939, op. c i t . p. 2.  6  - 139 each tag must be paid for. To operate a roadside stand and s e l l summer vegetables, one must procure a licence from the Board.  If a registered  producer sells a volume of over f i f t y standard containers his licence fee will be ten dollars per crop year.  Non-registered producers have an option  of paying 35 dollars for a licence fee or attaching an appropriate Board Revenue Tag to each standard container. The remaining funds required for Board operations are received in the form of an Agency licence from the Interior Vegetable Marketing Agency.Limited. During the operating year the funds are transferred from the Agency to the Board in the form of loans. At the end of the year the equivalent of these loans becomes the Agency's licence fee. Total sales value for 1970 vegetable crops grown in the B.C. interior was $1,564,222.16.  (See Table XVII''.)  Powers The Board has the power to regulate the time and place at which any regulated product is to be marketed and i s authorized to designate an agency. Exemptions of the orders may be granted by the Board to individual persons or for particular products. being marketed.  Any class or grade of product may be prohibited from  Similarly, any person may be prohibited from transporting  regulated product without tags or labels on each container, or without written consent from the Board. Pricing powers include the authority to f i x prices, or to set a maximum and/or minimum price for the regulated product according to grade or class, or time and place of marketing.  The markup that dealers may add to the price  may be regulated by the Board.  The sale or purchase of the regulated product  for canning or processing is prohibited where no price has been set by the  - 140 TABLE XVII TOTAL SALES VALUES OF INTERIOR VEGETABLE CROPS  1970 $  Pooled vegetables (various) Pooled netted gem potatoes Direct.accounting Total value fresh sales Cannery asparagus Cannery tomatoes Total value processing crops GRAND TOTAL VALUE  '  1969 $  833,419.19 311,574.32 237,053.84  924,005.57 390,761.20 372,203.50  1,382,048.07  1,686,970.27  109,597,13 (233 tons) 72,576.96 (1,672 tons)  97,650.00 (217 tons) 121,600.00 (3,040 tons)  182,174.09  219,250.00  1,564,222.16  1,906,220.27  Highlights of Main Fresh Vegetable Sales Netted Gem potatoes A l l Grades  lbs. $  15,011,580 386,806.12  16,777,485 487,204.93  A l l other potatoes A l l Grades  lbs. $  7,182,660 255,838.66  7,808,680 207,114.49  Onions A l l varieties A l l Grades (not silverskins)  lbs. $  ' 5,451.180 253,125.22  5,104,358 312,615.22  Cabbage A l l varieties A l l Grades  lbs. $  1,102,470 51,202.42  1,614,678 81,014.92  Peppers A l l varieties  lbs. $  468,630 66,372.38  777,899 103,140.55  Corn A l l varieties  doz. $  97,157 67,413.50  174,675 90,589.28  Source:  B.C. Interior Vegetable Marketing Board.  - 141 Board, unless the Board has given written authorization. Other powers of the Board include the authority to require registration and licencing.  The scheme permits funds of the Board to be used for promotion  of the vegetable industry.  The powers to authorize an agency to conduct pools,  to distribute proceeds, to inspect vehicles, books, accounts and records are permitted under the Order-in-Council. Organizational Structure The area under the jurisdiction of this Board i s divided into twelve districts.  The registered growers in each district elect the number of  delegates allotted to that district under the scheme and an alternate for each delegate. The twenty-one- delegates or their alternates elect three members to the Board.  The new Board members appoint a fourth member nominated  by a representative group of persons engaged in marketing vegetables in the area.  The whole Board must be re-elected annually.  The B.C. Interior Vegetable Marketing Board has designated as the sole marketing agency B.C. Interior Vegetable Marketing Agency Ltd. Shippers and packers are designated as sub-agencies because the agency has no f a c i l i t i e s for central handling. Supply Management The sales agency of the Board allocates quota to the shippers.  It is the  responsibility of the packing house to allocate i t s quota to the growers. Prior to last year, quota was issued to the packing houses based on the acreage of the crop that the house had contracted with i t s growers.  If the  house holds 10 percent of the acreage then i t would receive 10 percent of the daily business.  - 142 Quota now is issued on the record of average shipments from that house over the past four years.  This regulation prevents growers from substantially  increasing production of a commodity in any single year; but i t also prevents new growers from starting with a large acreage of a commodity thereby significantly increasing local supply and causing a f a l l in the price. not applied until supply exceeds demand at a given price.  Quota i s  If a house wants  to increase i t s annual shipments and to build up i t s quota, i t s growers are advised to have an early crop or a late crop relative to the time that the main portion of the crop i s harvested. Price and Pricing Policy The Board has delegated i t s price fixing power to the Agency's sales manager. His position permits him to be informed on the prices, quality and supply available in different markets from different sources, as well as the Agency's supply and quality of products.  In effect, the American supply and  prices are the guideposts used i n pricing. The Board follows a policy of differential pricing.  Different prices  are applied to the interior market compared to the Vancouver or various prairie markets.  In the various markets the Board has different degrees of competition.  In the local market, too, the Board has an advantage over competitor suppliers because of lower transportation costs. Distribution of Returns The agency conducts the i n i t i a l pooling, invoices a l l sales and collects a l l monies.  During the summer pools are run on a weekly basis.  No deliberate  dates are set, because growers hoping to increase crop yields, would ship near the end of the pooling period. During the winter the pools are run on a monthly basis, with specific dates.  - 143 Proceeds are pooled and distributed according to grade and size of produce shipped from each packing house. After deducting set charges, the agency distributes the remaining funds to the shippers.  It is the shipper's responsibility to deduct his charges  and distribute the proceeds among the growers which ship to him. Policing Policing is carried out i n order that the agency i s able to operate as the sole selling agent.  Registered growers are allowed (according to the Board's  regulations) to sell summer vegetables directly to r e t a i l dealers, roadside stand operators, and commercial consumers.  Winter vegetables starting  annually on October 1st until the end of the market season, must f i r s t pass through the agency and i t s sub-agents.  The registered grower may, however,  make sales for an individual's or his family's home use.  The maximum that  may be purchased this way, for final consumption, are twenty standard containers, of which (except for tomatoes) not more than three may be of any one regulated product, in any one year. Policing of transport regulations i s done by joint use of personnel with the B.C. Fruit Board. Books of shippers are not checked by the Board unless there is an appeal from a grower. Problems A poorly defined production area, caused by the isolated pockets of production will continue to affect the marketing costs. The lower price received from outside of the production area, and the high cost of marketing in these areas results in a lowering of the pool price.  The higher price received within  - 144 the Board area, has stimulated more direct sales from the grower. This reaction has forced the Board to enforce the zoning regulations.  In order  to obtain revenue to operate, the area is divided into seven marketing zones across which products are not allowed to flow without authorization from the Board. The competition from the United States of products being sold at distress prices has restricted the effectiveness of both Vegetable Boards' operations.  No control can be exercised by the Board over imports.  - 145 C. THE B.C. MUSHROOM MARKETING BOARD  7  History Commercial mushroom production in the Fraser Valley goes back to 1928 when Mr. W.T. Money started his mushroom farm.  It was not long afterwards that other  people sought Mr. Money's advice on the feasibility of starting a mushroom farm. New farms were started, so that by 1931 there were eight growers in the business. The farmers had to concentrate on production and marketing of their product, but communication between them with regard to price and manner of marketing the product proved unsatisfactory.  Mr. Money called the growers together and proposed  to them that he would stop production and do the marketing, so that the other producers could concentrate on production.  Thus the W.T. Money Company Ltd. was  established.  A relationship of trust and good will existed between producer and  distributor.  B i l l Money retired from the business on January, 1956 at which time  the Fraser Valley Mushroom Growers' Co-operative Association was formed, but the "Money's Mushrooms" trade name was retained.  In 1958 an oversupply of mushrooms  developed, with the results that the Co-operative was closed to new members. In spite of these conditions new growers s t i l l went into business and intense competition developed.  Peddling of mushrooms occurred; a significant number  of the growers was selling direct to canneries and private outlets. In 1965 the Co-operative was again opened up to new members, but this event did not eliminate a l l the organizations which had emerged during the competitive period. 7  Personal interview with Mr. A.D. Pigott, Secretary of the B.C. Mushroom Marketing Board and Manager of the Fraser Valley Mushroom Growers' Co-operative. British Columbia, Natural Products Marketing (B.C.) Act, B.C. Mushroom Scheme. B.C. Mushroom Marketing Board, General Orders, Vancouver, B.C., Sept., 1966.  - 146 -  The B.C. Mushroom Marketing Board was established in July, 1966 at which time the remaining competitor went into the business of deep-freezing mushrooms. General Description With the start of the Marketing Board in 1963 there were approximately ninety growers, seventy-five of which were members of the Fraser Valley Mushroom Growers' Co-operative Association (FVMGCA).  At present seventy-five  growers remain, while three of the smaller growers are not members of the Co-operative. At present, the Board's geographical area of concern i s ooly the Fraser Valley, since other areas are exempt as defined i n the General Orders. Next to potatoes, mushrooms are the most valuable vegetable crop in British Columbia, netting growers $2,242,238 in 1971 (Table XVIII). The General Orders of the B.C. Mushroom Marketing Board state that no person other than an agency shall grow, pack, transport, process, store, or market the regulated product in i t s natural or processed form unless he is registered by the Board and obtains the appropriate licences. only the growers are registered and licenced.  Presently  The charge for both  registration and licence is one dollar per year. Financing of the Board takes place through the collection of fees for growers' licences as well as through a deduction of one-third cent per pound on the adjusted total that the grower ships to the Board.  The adjusted total  means that mushrooms graded No. 2 are converted to No. 1 by multiplying the number of pounds of second grade mushrooms by 3/5. Powers The Marketing Board, in the Order-in-Council, is given the power to  - 147 TABLE XVIII MUSHROOM SALES  Year  .# of lbs.  . . Gross Value $  .  Net to Growers $  1971  4,142,128  2,370,082  2,242,238  1970  3,297,747  1,769,795  1,588,283  1969  3,130,646  1,597,643  1,445,130  1968  3,029,290  1965  1,696,420  1960  1,446,319  1929  4,944  Source:  B.C. Mushroom Marketing Board.  - 148 regulate, promote and control and prohibit, a l l aspects of transportation, packing, storing, and marketing of the regulated product. The Board requires a l l product to pass through i t s designated agency namely the Fraser Valley Mushroom Growers' Co-operative Association. The Marketing Board employs i t s power in requiring the licencing of growers.  Its price fixing powers are used in that the price i s set for the  product as sold to wholesalers and processors. The agency, in behalf of the Board, conducts pools for the distribution of the growers' returns. Organizational Structure The Board consists of three members who are elected from amongst the producers.  One member i s elected annually.  The Co-operative is the sole marketing agency for the mushrooms. Growers are permitted to sell lots of up to five pounds on their own farm for private consumption.  A l l other sales go through the Co-operative which grades,  washes, and packs the mushrooms. The Co-operative also distributes fresh mushrooms to wholesalers and r e t a i l outlets.  Surplus mushrooms are canned  or frozen. Although the Co-operative has a small interest in a canning firm on Lulu Island, the freezing and canning operations are essentially independent from the Co-operative. Supply Management The mushroom growers are facing a steadily increasing demand, and have on several occasions been in the enviable position of having an undersupply. As a sort of safety precaution, however, a basis has been established for a quarterly quota, should the need arise that supply is to be controlled.  - 149 The  annual  quota  quota  will  years'  be  thousand  both  plant  and  growing  in  will  not  allotment  four  of  year  until  the be  averaging  the  best  Marketing  best  quarterly  three  n o t -been  in  years  quota. of  production  five  that  long  special  be  two-hundred  the  minimum quota  shall  be  ten  of  except  the to  total. by  rent,  premises  the  quota  Quotas  is  be  lease  or  leased,  percentage  shall  are  of  of  the  surplus pool  fifty-  pounds to  the  tenant  footage  a l l o c a t e d to A  attached  the  total  and  thousand  sale  annual  last  shall  adjusted  The  the  quota  Board  for  in  exempted  conform  a  of  is  to  the  on  a  the  the quota  first quota  quota  years 10  is  of  a  growing  receive  rented.  Mushrooms  surplus pool may  be  a  mushroom  shall  and  terminated  June  to  the  may h a v e  i t  carried forward  i f  the  percent. will  Except  the  to  growers  yearly  Board  regulations  five.  allotted  in  from  t h i r t y - f i r s t  in the  situation  last New  be  subject  Marketing  of  year.  each year  licence  allotment by  the  quarterly  three  can a t t a i n  (This  must  the  maximum  from  adjusted  pounds. areas  runs  end  may  grower  has  the  p r o c e s s e d mushrooms.  an unused  quota  any  of  obtain  The  the  a part  to  on  notice.  quota  quarter  and  quarterly  price  with  grower  proportion  the  months'  grower  the  of  the  The  a  transferable  If in  four  average  made).  a year  plant.  receive  i f  c a l c u l a t e d on are  excess  on the  (or  be  pounds  year,  d i v i d e d by  based  production  provisions  his  is  case  maximum  applying  new  to  by  the  the  the  of  the  A next  growers, again increase  B.C.  Board.)  shipping through  May.  by  quota  minimum q u o t a  review  to  so w a r r a n t s ,  The  the  of  of  Mushroom  ten  thousand  Growers Board  Agency  force.  Policing Policing (as  they  make  casual  their  basis  is  deliveries),  conducted by and by  the  Board members,  growers  by  themselves,  agency to  employees  ensure  that  - 150 Board Orders are complied with and to make certain that the Fraser Valley Mushroom Co-operative i s , indeed, acting as the sole marketing agency for mushrooms grown in the Lower Mainland. Distribution of Returns The receipts from the fresh market sales, and that portion used for processing, are pooled and the returns distributed among the growers.  On  these returns to the growers the F.V.M.G.C. imposes a holdback of 20 percent on mushrooms that are used for the fresh market and 7 l percent on that which is processed.  Undivided earnings are then distributed at the year end on a  per-pound basis. The Co-operative is financed through share capital.  The member-growers  pay two hundred dollars per one-thousand square feet of growing area.  As  the individual members enlarge their growing plant, they have to increase their share capital in the Co-operative correspondingly.  - 151 CHAPTER IX A CASE STUDY: THE B.C. BROILER MARKETING BOARD The B.C. Broiler Marketing Board will be used as a case study to analyze the model which was developed in Chapter II, in particular to compare some of the propositions made with actual data of the broiler industry in British Columbia. The B.C. Broiler Marketing Board regulates the marketing of chickens, under six months of age, raised for poultry meat production and not raised or used for egg production.  This would include the Rock Cornish game hens,  roasting chickens and broilers. The broiler industry is a rapidly expanding one.  The volume of broiler  chickens weighing under three pounds, eviscerated weight basis, slaughtered in registered stations in Canada, increased approximately five times during the period 1953 to 1962.  From 1963 to 1970, the amount of broilers slaughtered  and weighing less than four pounds eviscerated almost doubled.  The volume of  chickens slaughtered weighing four pounds and over, however, did not show the same increase.  The larger birds accounted for approximately one-seventh of  the total slaughter for broiler chickens in 1963.  A trend away from the larger  chickens is in evidence as i t s volume in 1970 was approximately one-tenth of that of the smaller birds in the same year.  (See Table  XIX.)  Supply Although the demand for broilers has increased dramatically in the last eighteen years, the supply in the unrestricted market increased more rapidly. The change in the conversion ratio .(the ratio of feed required for one pound of pound of gain in weight) was a fundamental factor in lowering the average  - 152 TABLE XIX POULTRY SLAUGHTERED IN REGISTERED STATIONS IN CANADA (Numbers and Eviscerated Weight Equivalent)  Chickens Under 4 Pounds Number of birds Thousands of in Thousands Pounds  Chickens Over 4 Pounds Number of birds Thousands of Pounds in Thousands  1955  n.a.  53,373  n.a.  19,111  1956  n.a.  90,199  n.a.  24,611  1957  n.a.  109,904  n.a.  20,283  1958  n.a.  153,681  n.a.  24,200  1959  n.a.  168,947  n.a.  22,400  1960  n.a.  184,820  n.a.  26,256  1961  82,071  226,523  9,786  43,750  1962  81,506  227,276  10,162  44,200  1963  96,335  276,979  8,106  40,857  1964  105,800  305,608  8,289  42,400  1965  113,944  328,313  9,184  47,692  1966  127,844  371,672  9,870  51,772  1967  137,042  406,769  9,680  50,943  1968  145,095  428,027  10,231  54,703  1969  168,940  499,393  11,448  60,812  1970  190,045  533,183  10,624  56,689  1971  182,116  532,617  10,209  54,259  1955-1962 figures are for under 3 pounds and for 3 pounds and over. Source:  Poultry Market Review, Agriculture Canada, Production and Marketing Branch, Ottawa.  - 153 costs and shifting the supply curve to the right.  Feed costs are an important  factor in the production of poultry meat, representing the largest single cost item, or about 65 percent of the total costs.  In 1947 i t took about four  pounds of feed for one pound of gain for b r o i l e r s . pounds.  1  In 1963 i t took about 2.2  This corresponds with a Fraser Valley producer's average conversion  ratio of 2.34 for his last 10 flocks.  For a producer of 30,000 birds per l o t ,  each bird raised to about 3.5 pounds, and five flocks of birds raised per year, a change in the conversion ratio from 4 to 2.2 w i l l bring a reduction in cost of about 50,000 dollars per year.  (Feed costs are assumed to be $5.30 per  hundred-weight.) Over the years mechanical aids have lowered the cost of producing broilers. Mechanical aids such as automatic watering and feeding, and manure handling 2 systems have increased the productivity per man-hour enormously.  These aids  also have caused a shift in the supply curve to the right. In British Columbia quantitative restrictions, however, are enforced by the B.C. Broiler Marketing Board which regulates the supply of broilers on the market.  Local producers are allotted marketing quotas, permitting them  to market a certain quantity of broilers. restricted by means of import orders.  Imports from other provinces are  Imports from other provinces are  allowed into the province of British Columbia only upon the approval of the Board. *J:T. H i l l , "Structure and Concentration in the Canadian Poultry Meat Industry." Canadian Farm Economics, Vol. I, No. 2 (1966), p. 11. 2 The labour requirement for 100 pounds of broilers in the U.S. averaged 3.10 hours in 1950-51 compared with 0.98 hours in 1960-61 according to M.K. Emmery, The Outlook for Poultry Meat in Canada to 1980. Ottawa, Canada Department of Agriculture, Economics Branch, Dec. 1967, p. 21.  - 154 Demand The consumption of poultry meat including fowl, broiler chicken, turkey, geese, and ducks increased during the period 1966 to 1970 by 13.7 percent.  A  more dramatic increase was represented by the consumption of broiler chickens which increased during the same period by 60.5 percent.  (See Table XX".)  Since the increase in population would be only one factor in increasing the demand for poultry products, i t i s apparent that some of the large increase in poultry consumption must be attributable to the change of taste and preferences of consumers.  It i s d i f f i c u l t to assess the effects which the  advertising and promotion expenditures of agencies as the B.C. Broiler Marketing Board have had on influencing the taste and preference of consumers.  Perhaps  the more important factors affecting the demand for poultry meat products are price elasticity, cross price elasticity, and income elasticity. Price elasticity refers to the effect that changes in the price of poultry meat have on the quantity of poultry meat consumed. A reduction in the price of chicken meat would be expected to result in an increase in the quantity consumed. Cross price elasticity indicates what effect changes in the price of other products would have on the quantity of poultry meat consumed.  Hence, an increase  in the price of substitute products such as red meat would be expected to result in an increase in poultry meat consumed. As the average wholesale price of a steer, beef carcass, of commercial quality increased by 22.7 percent from 1965 3 to 1970, this fact would probably account for part of the increase in poultry meat consumption. 3 Statistics of the Agricultural Industry in B.C. 1946-1970, Vancouver: University of British Columbia, Department of Agricultural Economics.  - 155 TABLE XX CONSUMPTION OF POULTRY MEAT  1  Year  Broiler Chicken  A l l Poultry Meat  - pounds -  - pounds -  1971  29.2  43.8  1970  30.5  44.8  1969  28.6  42.8  1968  25.2  39.7  1967  20.5  40.7  1966  19.0  39.4  1965  Source:  36.7  Poultry Market Review, Agriculture Canada, Production and Marketing Branch, Ottawa.  - 156 Finally then, income elasticity reflects the expected changes in the quantity of poultry meat consumed with a change in the amount of disposable income. With a rise in disposable income, consumers change their food purchasing habits, and appear to buy more poultry products.  The combined increase in disposable income  and available leisure time may have brought about the rise in fast-food outlets, many specializing in ready-to-serve chicken products. A l l of these factors such as population, cross elasticity, price elasticity, 4 and advertising, act as forces in altering the demand. A study by Emmery covering the period 1949 to 1965 showed a 7.85 percent per year increase i n the r e t a i l consumption of poultry meat in Canada.  Of this total growth, 2.4 percent was  attributed to population growth, 2.2 percent to incomes, -0.1 percent to changes in pork prices, and 3.1 percent to declines in poultry meat prices.  The adjusted  beef prices were nearly the same throughout this study and were therefore considered insignificnat. Market Structure Producers are only one link in the Canadian Poultry Meat industry. Eggs from special supply flocks provide hatcheries with eggs from special strains of meaty, fast-growing birds.  The hatchery incubates the eggs, and furnishes the  grower with his chicks. The grower broods the chicks a r t i f i c i a l l y and feeds them with feed supplied by the local dealer. Having reached the required weight, the birds are then shipped to processing plants where they are k i l l e d , eviscerated, graded, packaged in fresh or frozen form and stored ready for shipment to the r e t a i l firm for the consumer to purchase.  Emmergy, op. c i t . , p. 16.  - 157 More than other agricultural industries, the poultry growing industry i s faced with vertical integration of allied industries into the growing operation. These allied industries comprise feed companies, hatcheries, and processors. In other words the concept of the independent family farm i s being eroded. The reasons for a l l i e d industries absorbing farm units or creating their own poultry units are: (a)  assuring supplies;  (b)  financing grower expansion;  (c)  assuring markets; 5  (d)  enhancing market control.  -  The B.C. Broiler Marketing Board has curbed this expansion of allied industries by limiting the size of quota holdings to up to three percent of total primary quota and by having growers sign a letter (before a primary quota can be transferred) that they are not financed by a company or a person representing or having financial interest in a trade allied to broiler marketing. The poultry meat industry is very concentrated in British Columbia. (Concentration refers to the number of firms in the industry and the proportionate share of total output which can be attributed to each firm.)  In the hatchery  industry in British Columbia, in the year 1963, the top four firms produced 89 percent of the broiler chicks.  During the same year the top four processing  firms processed 86.6 percent of the broiler chickens.  H i l l reports in his  article on the "Structure and Concentration in the Canadian poultry Meat Industry", that in 1963 there were 32 hatcheries in total in British Columbia J.T. H i l l , "Economics of Vertical Integration in the Canadian Poultry Industry", Canadian Journal of Agricultural Economics, Vol. XIV (2), pp. 32-40. J.T. H i l l , "Structure and Concentration in the Canadian Poultry Meat Industry", op. c i t . , pp. 5-13.  - 158 and 24 registered processing plants.  In 1971 there were only 15 hatcheries in  British Columbia and 11 registered poultry processing plants.  The degree of  concentration by the four top processing firms increased until 1968.  Since  that year the firm commanding the largest market share has been losing some of i t s market share.  Currently the top four firms have 80 percent of the  market shares and the top five have 90 percent of the market shares.  This  would indicate that the processing industry is a concentrated industry.  (See  Tables XXI to XXIV.) The degree of concentration in the hatching industry is similar to that in the processing industry.  Each processing firm has i t s own  hatchery.  Generally then, i t can be said that the birds which a processing firm processes are from i t s own  hatchery.  The degree of concentration in the poultry industry is greater than indicated by examining the processing and hatching industries because not only are processing firms and hatcheries often under one ownership but sometimes even feed companies and growing operations are under the same ownership. The Board's regulations set a limit to quota holdings, and forbid any financial aid from allied industries for quota purchases.  In this way the  Board attempts to preserve the independent family farm referred to before, and the large corporations are prevented from obtaining control over the growing of broilers. Before the formation of the Board, the producer could have found himself in a price squeeze.  The independent producer could have been caught in a price  squeeze, i f the hatcheries had charged exorbitantly high prices for the chicks and the processors had offered to pay low prices for the birds after they were ready for processing.  Currently a contract, stipulating the terms and conditions  TABLE XXI. CONCENTRATION IN THE POULTRY PROCESSING INDUSTRY - PERCENTAGE OF TOTAL POULTRY MEAT PRODUCED BY THE TOP EIGHT FIRMS BY REGION, CANADA, 1963British Columbia Firm  Prairies  Ontario  Quebec  Maritimes  Canada  1963  1971-^  47.9 20.7 12.3 5.7 86.6  34.4 20.6 13.6 11.4 80.0  18.2 15.0 14.8 11.2 59.2 '  8.5 7.6 7.4 7.2 30.7  13.7 9.8 9.8 9.0 42.3  46.8 16.0 16.0 11.6 90.4  8.1 4.6 4.3 3.8 20.8  10.0  percent  2.2 1.7 1.1 1.1 92.7  10.5 5.4 4.8 4.0 83.9  6.4 6.2 6.1 6.0 55.4  7.4 6.8 6.3 6.1 68.9  4.9 1.7 1.5 0.6 99.1  3.1 3.1 3.1 3.0 33.1  Remaining firms  number percent  16 7.3  19 16.1  48 44.6  30 31.1  3 0.9  143  Total processed by a l l registered plants  thousand pounds  78,367  194,342  150,392  14,928  475,538  a  1 2 3. 4 Top Four  percent  5 6 7 8 Top Eight  percent  percent  37,509  There are 153 firms controlling the 1970 plants surveyed. b  I n 1968 the top four firms had 88 percent of the B.C.. Market Share•  Source:  ^ J . T . H i l l , "Structure and Concentration in the Canadian Poultry Meat Industry" , Canadian Farm Economics, Vol. I, No. 2, p. 10. —B.C. Broiler Marketing Board.  TABLE XXII SURVEY OF 170 REGISTERED PROCESSING PLANTS ARRANGED ACCORDING TO TOTAL ANNUAL VOLUME OF POULTRY MEAT PROCESSED BY REGION, CANADA, 1963 1  Total Pounds Eviscerated Weight  British Columbia  Prairies  Ontario  Quebec  Maritimes  Canada  Percent  - number Up to 50,000  2  5  4  2  2  15  8.3  50,001 -  100,000  3  2  7  2  2  16  9.4  100,001 -  500,000  13  7  6  2  41  24.1  1,000,000,  2  2  4  8  1  17  10.0  1,000,001 -  3,000,000  1  11  10  9  3  34  20.0  3,000,001 -  5,000,000  1  10  7  -  -  18  10.6  5,000,001 - 10,000,000  1  2  4  5  1  13  7.7  Over 10,000,000  1  -  9  6  -  16  9.4  24  39  58  38  11  170  100.0  500,001 -  Total Plants  13 .  The plant which k i l l s , dresses or eviscerates birds bought from growers requires a certificate of registration. In addition,.most of the large modern plants have inspectors from the Health of Animals Branch of the Department of Agriculture who inspect every bird passing through the processing line. Source:  J.T. H i l l , "Structure and Concentration Farm Economics, Vol. I, No. 2, p. 9.  in the Canadian Poultry Meat Industry", Canadian  TABLE XXIII DEGREE OF CONCENTRATION IN THE HATCHERY INDUSTRY - IN TERMS OF PERCENTAGE OF TOTAL OUTPUT BY TOP 2, 4, and 8 FIRMS, BY REGION, CANADA, 1963  Production by B r o i l e r Chicks  British Columbia  Prairies  Ontario  Quebec  Atlantic  /Canada  Top 2 firms  percent  66.7  29.1  27.7  30.9  65.1  12.8  Top 4 firms  percent  89.0  52.9  45.2  45.8  87.5  22.5  Top 8 firms  percent  98.1  77.2  70.7  66.0  99.7  37.6  Total firms  number  15  41  25  26  10  117  Total  thousands  9,327  13,907  48,756  28,875  5,055  output  Source:  105,920  J.T. H i l l , "Structure and Concentraion i n the Canadian Poultry Meat Industry", Canadian Farm Economics, Vol. I, No. 2, 1966, pp. 7 - 8.  TABLE XXIV NUMBER' OF HATCHERIES PRODUCING BROILER CHICKS - ACCORDING TO SIZE OF ANNUAL OUTPUT BY REGION, CANADA, 1963  British Columbia  Prairies  Ontario  Quebec  Atlantic  Canada  Percent  - number 1 -  29,999  5  19  -  2  2  28  23.9  30,000 -  49,999  1  3  -  -  1  5  4.3  50,000 -  99,999  1  2  3  3  -  9  7.7  100,000 '- 299,999  3  5  2  1  3  14  12.0  300,000 - 499,999  -  2  1  2  1  6  5.1  500,000 - 999,999  2  5  5  8  1  21  17.9  1 - 2.9 million  2  5  7  8  2  24  -20.5  3 - 4.9 million  1  -1  5  1  -  7  6.0  5 million and over  -  2  1  -  3  2.6  25  26  10  117  100.0  Total  Source:  15  41  •  J.T. H i l l , "Structure and Concentration in the Canadian Poultry Meat Industry", Canadian Farm Economics, Vol. I, No. 2, 1966, pp. 7 - 8.  - 163 of sale, is required by the Board between the hatchery, grower, and processor. This contract is signed before the eggs are incubated.  It includes the price  the farmer will pay for the chicks and stipulates as well that the processor agrees to buy those chickens at a specified time.  The price the processor pays  for the chickens is the price set by the Board at the time of processing. The poultry feed industry exhibits behavior characteristic of an oligopoly. The feed costs represent approximately 60 to 65 percent of the total cost to a grower.  Feed prices in the 10-year period 1958 to 1968 increased by about  7 5 percent over 1958 prices.  That there is a steady climb in feed prices  becomes evident from graph 3.  In general, feed prices are matched closely by  rival firms and product quality and service expenditure are the major forms of competition.  In British Columbia there are thirteen feed companies, eight of  which are located in the Fraser Valley. 7 of the feed to broiler growers.  Five of these firms supply the majority  This state of affairs would indicate a  considerable degree of concentration in the feed industry as well. Chickens, in the form of broilers, roasters, or Rock Cornish game hens, are distributed in great volume through r e t a i l chain stores.  The processing firm:  delivers this product to the store or the distribution center of the chain store. g  The sales of the grocery and combination stores accounted for about 90 percent of total retail food store sales.  Combination stores alone account for about  75 percent of sales of a l l retail food outlets. 7 An interview with Mr. B i l l Ritchie, President of the B.C. Feed Manufacturers Association. g Grocery stores are retail outlets engaged mainly in selling a variety of fresh and processed foods and also such household items as soaps but l i t t l e or no fresh meat. Combination stores also sell a balanced line of groceries and household items and in addition between 15 and 50 percent of their sales consist of fresh meat. See Department of Consumer and Corporate Affairs, Annual Report of the Director of Investigation and Research, Information Canada, 1971, pp. 16-29.  - 164 -  Graph * PRICE / $  AVERAGE RETAIL PRICE OF BROILER. STARTER MASH ( 2 0 - 2 3 % ) , 1959-1972  *  6.00-  First of December Prices  5.80-4-  5.60-  5.40-  5.20  5.00-  4.80-  ,959  '60  '61  tz  '63  Source: Prices and Price Indexes, Statistics  'L  *65  '66  Canada, Ottawa.  >V  *—-i  '68  "69 '70 '-Tl  \  H  - 165 In 1966 the three largest chain store companies, of eleven found in B.C., accounted for almost 40 percent of retail food sales and about 46 percent of grocery and combination store sales.  However, they accounted for just under  82 percent of a l l retail food chain store sales, or approximately  90 percent  of combination chain store sales only. • "The chains make every effort to achieve economies through lower procurement outlays for these commodities. The considerable bargaining power of the retail chain organizations is brought to bear, therefore, upon the poultry processor who has to settle with the chain on the terms of sale of a large uniform shipment of perishable product. When supplies are substantial, the chains have a considerable advantage and processors may be susceptible to extensive pressure to lower price. This has an impact upon the market and upon growers' receipts." Other major markets for poultry meat are institutions such as hospitals and penitentiaries, but also restaurants and hotels.  In addition, a great  proportion of chicken meat is sold by fast-food outlets. ^ This has had an 1  effect on the type and size of bird demanded by buyers.  Especially buyers  for fast-food outlets require a smaller bird and birds very uniform in size. This uniformity facilitates their marketing operation.  A common feature of  these outlets is to s e l l chicken by the number of pieces.  To be able to sell  a certain number of pieces at a set price and to ensure that the customers a l l receive approximately  the same amount of chicken in a "snack box" or  "barrel" the chickens must be of uniform size.  This requirement has led to  the categorization of broiler chicken by weight, and to f a i r l y rigid rules for the length of growing period.  J.T. H i l l , "Structure and Concentration in the Canadian Poultry Meat Industry", op. c i t . , p. 12. The market share of fast-food.outlets increased by approximately 10 percent since 1962 to 30 percent. A personal interview with Mr. Ron Stafford, Secretary-Manager of the B.C. Broiler Board.  - 166 Price The average price for broilers declined rapidly from 1953 to 1961, from an average high of 30.6 cents on the Vancouver market in 1953 to 18.4 cents in 1961.  (See graph 4 . )  11  As of January, 1962 the B.C. Broiler Marketing  Board has had authority to regulate the British Columbia broiler market. If we examine what has happened to the British Columbia broiler market during the decade the B.C. Broiler Marketing Board has been in existence, by comparing average prices of the Vancouver market with that of the Montreal market, i t soon becomes evident that the Vancouver average market prices are higher.  The  Montreal market was an unregulated market until December, 1970', when the Quebec Poultry Meat Board was established.  Graph 4 would seem to bear out the  proposition that there is less year-to-year price variability in a controlled market as compared to an uncontrolled market.  The two markets seem to move  fairly parallel until the latter half of the 60's.  Especially from 1966 on,  the disparity between the two market averages has been increasing.  The degree  of price fluctuation is less but also the price is maintained at a higher level in the controlled than in the free market.  This phenomenon suggests  that prices in controlled market are a r t i f i c i a l l y maintained at a higher level. Quota Although the Marketing Board does not recognize a market for quotas; quotas do, however, have value to the producer.  In 1961 the quotas traded for 25 cents  ^Note: Graph 4 i s derived by taking the average of the monthly averages for live poultry of the broiler chicken category. From the years 1953 to 1956, the price of 3 to 4 lb. chicken was used. Part way through the year 1956 the class known as broilers and fryers was used because the classification changed. Starting in 1963 the classification changed again and the class listed as chicken 5 lbs. or under was taken.  .167 _  Graph 4.  LIVE POULTRY: AVERAGE YEARLY BROILER PRICES RECEIVED BY PRODUCERS, 1953-1971  CENTS/LB  32,  ie * 1953 Source:  ! '54  1 ] 1 I | } \ 1 1 1 1 f-—| i } 1 1 \ '55  Poultry  '56  Market  '57  '58  Review|  '59  '60  '61  '62  Agriculture Canada,  "63  "64  '65  P r o d u c t i o n and  '66  '67  '68  '69  Marketing Branch,  '70  Ottawa.  '71  '72  - 168 per bird.  In 1972 the quota values rose to and traded for $3.25 per bird.  12  Producers have taken capital gains on the right to produce and limit production established through government legislation. on the excess profits owing to quotas.  Also, producers have capitalized  The rise in quota values would indicate  that from the producer's point of view broiler production is a profitable enterprise. To the consumer, quotas represent added costs per pound of chicken.  With  a quota of 25,000 birds per l o t , for example, the capital required to purchase the quota at 1972 prices would be $81,250.  This capital is about equal to that  invested in buildings, equipment and land assuming an investment in buildings and equipment of three dollars per bird. has two consequences.  A large capital investment in quota  First, this capital i s prevented from being utilized in  other productive uses.  Second, the operating costs of the enterprise is affected.  At eight percent interest per annum the cost of production for five lots of 25,000 birds would rise by 6,500 dollars or five cents per bird.  For a 3.5  pound broiler this would represent approximately one and a half cents per pound. Other operating costs associated with the quota system would be the licence fees (of the processors, producers, truckers, and so on), and the three-quarters of a cent per bird assessed to cover Marketing Board costs. In a competitive economy a firm w i l l in the long run be forced to produce with an efficient scale of operation, or else other firms with lower costs will be able to accept a lower price and/or increase production until the long run average costs equal average price.  The inefficeint firms will be forced out  of business i f their average total costs, including a normal profit, are not covered in the long run.  But when barriers to entry are created which prohibit  Personal interview with Mr. Ron Stafford, op. c i t .  - 169- " others from entering there is nothing that will foree the firms to obtain optimum size:  a scale of plant at which the firm w i l l produce at lowest  costs. 13 Cost studies done in Alberta,  for the period March 1968 - May  1969  indicate that a 10,000 - 15,000 bird production unit can achieve a l l the physical economies and cost savings obtainable.  Beyond that size a producer  can only enhance his total revenue by the duplication of production units. The difference in production costs between a flock size of less than 4,000 and the 10,000 to 15,000 birds category was 2.814  cents per pound.  The  production cost of the smaller flock is 114.9 percent of the average total cost at minimum cost position, indicating that significant economies of scale are obtained by the larger unit.  The difference in costs between this  optimum category and the other two categories below optimum (4,000 - 7,000 and 7,000 - 10,000) are 1.177  and .295 cents per pound respectively. Producers  operating below optimum size would not have an efficient size of plant and would not be producing at lowest cost.  (See graphs 5 and  6.)  Producers may not always produce at an optimum rate of output for their size of production unit.  As of March 1, 1972 a l l growers must have space  available on their farm for 100 percent of primary and secondary quota. may  lead to excess production capacity.  This  For example for the 10 weeks January 1  to March 9, 1971, only 100 percent of primary quota was marketed. the capacity required to produce secondary quota was not utilized.  Apparently, Xt times  producers were permitted to market more than 100 percent of primary and secondary 13  • " R.R. Hurnanen, M.H. Hawkins, and T.W. Manning, "Vertical Integration and Concentration in the Alberta Broiler Industry" (Edmonton: The University of Alberta, The Department of Extension, Agricultural Economics and Rural Sociology) Res. Bull. 8, Aug., 1970, pp. 17-20.  - 170 -.. 5.  Graph  T O T A L  C O S T S  V S  F L O C K  S I Z E  TOTAL COSTS ( Cents per pound) 22  T  \ 2 I  -  \ \ \ 20--  s  19--  18 < 4,000  4,000 •7,000  7,000 -10,000  10,000 -15,000  15,000 +  SIZE OF FLOCK  6.  Graph  T O T A L  C O S T S  A S  A  P E R C E N T A G E  T O T A L  C O S T S  A T  MINIMUM  C O S T  O F  A V E R A G E  P O S I T I O N  PERCENT 120-  115 —  \  \ \ \  11 0 - -  \ \ \  105+  N N  \  100 < 4,000  4,000 -7,000  7,000 -10,000  10,000 -15,000  15,000 +  SIZE OF FLOCK Source:  R.R. Hurnanen, M.H. Hawkins and T.W. Manning, Vertical Integration and Concentration in the Alberta Broiler Industry,  The University of Alberta, Department of Extension, Agricultural  Economics 8 Rural Sociology, Edmonton, Res. Bull. 8, Aug. 1970.  - 171 14 quota as during the nine weeks June 29, 1971 to August 31, 1971. This would suggest that producers have more capacity than i s required to produce just 100 percent of primary and secondary quotas, resulting i n more excess capacity when quotas are cut back.  Another possible consequence i s that when producers are  producing more than 100 percent of their quota, the broiler barns will be more crowded than recommended, resulting i n higher mortality, lower quality birds, and less efficient feed conversion. This alternative also results in a less than optimum rate of output. Farm Size In most agricultural production enterprises there i s a general trend to larger and more specialized units.  A check or limit to this trend i s imposed  by the B.C. Broiler Marketing Board in their regulations.  Particularly on  the bottom of the scale of the size of farms i s this expansion process in evidence.  (See Table XXV .) Producers have been purchasing additional quota  and some additional quotas have been granted to growers by the Board.  In the  last two years producers holding a primary quota of over 5,000 were given an additional quota of 10,000 birds in two separate allotments. Producers with less than 5,000 were given two allotments equal to their primary quota.  About  one-half of the growers had quotas of less than 20,000 at the beginning of 1970.  At the beginning of 1972 over one-half of the broiler growers had  quotas of more than 30,000 birds per cycle.  ,  If a 10,000 bird unit i s considered an efficient size unit during 1962 to the present time, then 59 percent of the farms in 1962 were of inefficient size,  B.C. Broiler Marketing Board, 1971 Annaul Report, p. 11.  - 172 TABLE XXV FARM SIZE (By quota holdings)  Farm Size (basic market quota)  No. of Registered Growers  1971*  1970  5,000  6  16  10,000  1  16  15,000  7  13  20,000  15  18  25,000  11  72  30,000  19  24  35,000  18  6  40,000  25  5  45,000  . 5  1  50,000  4  55,000  1  -  60,000  3  65,000  -  70,000  2  1  75,000  -  -  80,000  1  1  90,000  1  1  90,000  -  100,000  1  -  140,000  -  145,000  1  -  185,000 - 190,000  1  1  169  128  5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000  TOTAL  1962  139 56 15 30,000+  24  -  234  * Includes two additional allotments of quota of 5,000 each time for those producers holding primary quota of 5,000 or more, or the equivalent of primary quota for those with less than 5,000 primary quota. Source:  B.C. Broiler Marketing Board.  - 173 but only 25 percent in 1970 and a mere four percent in 1971.  It is assumed,  in this connection that a 10,000 bird unit constitutes the minimum efficient size.  Possibly the formation of the Marketing Board, increased the speed at  which units attained efficient size, compared to a situation where the economic forces in a competitive market were to reduce the number of inefficient producers.  In 1970, however, the inefficient producers produced only approx-  imately one, to one and a half percent of the total production.  (See  Table XXVI :.) As has been observed, the output per grower has increased while the number of growers has decreased from about 250 in 1961 to 119 in 1972; yet the production has almost doubled in that period. The Board, knowing the general cost structure of the industry and the profitability of the enterprise, deems a 30,000 bii'd quota an economic u n i t .  15  Information on costs could be obtained from one grower in the Fraser Valley. This producer's records (Table XXVI ) will be taken as an indication of the profitability of the broiler industry in British Columbia.  This particular  farm has-a quota of approximately 25,000 birds per cycle.  The average weight  per bird will be assumed to be 3.5 pounds.  It shall be further assumed that  the growing cycle for the five lots were completed during the year.  Based  upon these assumptions the income before personal taxes would be approximately $13,500 or approximately $5,400 for each 10,000 bird quota.  A 30,000 bird  operation, s t i l l considered to be a one-man operation would yield an income of approximately $16,200.  Included in costs would be a seven percent interest  on investment before taxes.  A maximum quota of 30,000 birds was established beyond which a grower cannot purchase additional quota. Personal interview with Mr. Ron Stafford, op. c i t .  TABLE XXVI A FRASER VALLEY BROILER PRODUCER'S FARM ACCOUNTING RECORDS BY FLOCK Unit  1  2  3  4  5  6  7  8  9  10  Birds started Birds sold Average weight Mortality Feed/bird sold Feed/lb. of bird sold  No. No. lbs. lbs. lbs.  21,114 20,298 3.965 2.86 9.64 2.932  21,318 20,280 3.99 4.87 9.27 2.32  23,338 21,561 3.82 3.48 9.10 2.38  23,154 22,204 3.60 4.10 8.13 2.26  24,582 23,377 3.26 4.90 7.76 2.38  23,154 21,741 3.02 6.10 7.33 2.42  26,520 25,107 3.30 5.33 7.55 2.29  30,600 29,455 3.49 3.74 7.63 2.35  26,622 25,387 3.73 4.64 8.64 2.31  27,846 26,784 3.84 3.81 8.69 2.26  Receipts/lb. sold  *  20.500  21.000  20.500  21.250  22.250  22.250  23.205  23.750  23.750  23.750  .00029 .00161 .00059 .00022 .10744 .00189 .00077 .03798 .00190 .00337  .00028 .00161 .00094 .00034 .10271. .00188 .00166 .03878 .00190 .00336  .00028 .00158 .00064 .00033 .10553 .00199 .00107 .03951 .00199 .00351  .00029 .00162 .00072 .00034 .09960 .00208 .00073 .04257 .00227 .00372  .00030 .00171 .00450 .00024 .10692 .00230 .00097 .04543 .00232 .00411  .00035 .00222  .00181  .11252 .00248 .00095 .05163 .00252 .00518  .00034 .10460 .00227 .00093 .04864 .00246 .00411  .00024 .00263 .00007 .00029 .10949 .00233 .00107 .04855 .00249 .00355  .00029 .00221 .00031 .00070 .10717 .00203 .00058 .04335 .00221 .00359  .00025 .00203 .00095 .00021 .10252 .00203 .00060 .04170 .00221 .00355  $  .15606  .15346  .15643  .16049  .16880  .17785  .16516  .17071  .16200  .15605  •$  4.894  5.654  4.857  5.201  5.370  4.465  6.689  6.679  7.550  8.145  %  Expenses/lb. sold Spray Bedding Medication Milk Replacer Feed cost • Marketing Board Legs wings Chicks Labour (catching) Brooding £ electricity  $  Sub-total Receipts - Expenses  $ $  .01092 .00323  Depreciation  $  .00698  Total Costs (2)  '$  .16627  Net income/lb.  $  .03873  .04633  .03836  .04835  .04349  $  .03104  .03864  .03067  .04066  .03580  _^  -  .01236 .00563  Overhead (1) (2)  Actual net income/lb.  -  -  .00840 .19188  .17919  .18474  .17603  .17008  .03062  .05286  .05276  .06147  .06742  (1) - Overhead including interest on mortgage (out of pocket expenses). (2) - Overhead not including interest on mortgage, to make comparable to other producers who own their farm completely and therefore do not have to pay interest on a mortgage. Source:  B.C. Department of Agriculture, Poultry Division, Abbotsford.  -  1 7 5  -  A large sample of broiler growers in Alberta ^ gives an indication of the 1  profitability of broiler growing in that province where the growers received an average net profit of 2.527 cents per pound. deducted and included in costs.  Labour in this study had been  Labour for a size of flock of less than 4,000  was deducted at 2.5 cents per pound and for a large flock of 15,000 and over at .9 cents per pound.  For the smaller flock this yields a labour cost of:  2.5<f/lb. x 3.8 lb./bird x 4,000 birds/lot x 5 lots/year = $1,900.00 For a flock sixe of 15,000, labour cost-would be: .9<£/lb. x 3.8 lb./bird x 15,000 birds/lot x 5 lots/year = $2,565.00 Yearly profit in this study yielded $4,801.30 per 10,000 bird flock; or for an investment of $3.00 per square foot or per bird, a return on investment of 16 percent before taxes was made on a total investment in buildings and equipment of $30,000. Summary Consumers in British Columbia are paying higher prices for chicken than they would have been paying had the market remained unregulated.  The quota  system leads to higher production costs resulting in higher prices to the consumer.  Control of marketing prevents the excess supply situation from  occurring and this keeps prices at a higher and more stable level tluan would be the case without quota control, as was shown in the comparison of the British Columbia market with Quebec's.  Import orders prevent broiler growers  in other provinces from acting as guardians over local prices.  "^R.R. Hurnanen, M.H. Hawkins, and T.W.  Manning, op. c i t . , pp. 17-20.  - 176 From the producers' viewpoint the Marketing Board has been very successful.  The Board has been able to attain that which the individual growers  had not been able to, namely a higher and a more stable price for their product.  "Elimination of 'boom and bust' production allows concentration  on production efficiency and specialization in technique, as well as the 17 benefits derived from long-range planning."  R.R. Hurnanen, M.H. Hawkins, and T.W. Manning, op. c i t . , p. 17.  - 177 " CHAPTER X SUMMARY AND CONCLUSIONS The Marketing Boards are producer-oriented and as such, the objectives of higher and more stable net incomes to producers, as well as the preservation of the family farm, reflect the vested interest of this group.  A complete  analysis and evaluation of the marketing boards however, would require a cost-benefit study, not only as i t affects producers but also the trade, (the distributors and processors of the product), and the larger group, namely the consumers. Producers Income.- Since the Marketing Board legislation was designed to alleviate the farm income problem i t may be of interest to pursue this issue f i r s t . Marketing boards have in general been able to raise the level of agricultural gross incomes and to engender greater stability.  But the question may arise,  whether farm incomes have risen faster or slower or just as fast as the real spending power of the dollar.  Because of a number of uncontrollable variables  both in demand and supply, the boards have been more successful in creating stability and i t s attendant economic security than in raising incomes.  The  cost of production is one of the most important of these variables. The various marketing boards differ in the extent to which they were able to stabilize and increase the net-income to producers.  The British Columbia  broiler producers have received considerably more stable prices for their birds than the producers obtained in the uncontrolled market which was examined.  An  increasing disparity between the prices received in the two markets, would suggest the incomes of the British Columbia producers to be higher than i f their  - 178 market was uncontrolled. The egg prices have been more stable and have been maintained at a considerably higher level than i n other provinces; this also would suggest that the Egg Board has been successful in stabilizing and increasing net incomes.  On the other hand, the B.C. Grape growers have not  been able to establish parity with their Ontario counterparts.  The B.C. Grape  growers contend that the increase in prices awarded by binding arbitration does not even cover the increase i n production costs, let alone permit the growers to share i n the increasing national product.  If we turn again to the other  marketing boards, we find that their evident success i s not by any means, self-evident.  The Milk Board, for instance, attempts to have the milk producers  stay at parity with other members of society.  This parity can be achieved only  to the extent that the price formula for quota milk, (as outlined in the Milk Industry Act) by reflecting changes i n production costs and changes in demand, is an accurate measure of the economic well-being of other society members. The Turkey Board by practicing supply management at a national level should theoretically be able to stablize and increase prices for i t s product.  The  Oyster Board was able to achieve i t s main objective of stability in the industry, by setting minimum price for locally grown oysters.  Furthermore, the increased  demand on the world market assisted producers in increasing their aggregate gross income.  The remaining boards, such as the vegetable boards have  designated a single selling agency.  They will attempt to achieve economies of  scale, control of quantity available to consumers and price discrimination and they should i f successful be effective i n stabilizing and possibly increasing aggregate net income.  The success of many marketing boards may be attributed  in part to their ability to distribute a rising or stable aggregate net income to fewer producers.  - 179 Income distribution. - Even i f in the aggregate-the producers' net income is higher, the farmers may not necessarily share equally in the increase.  The  income problem is not only that the average income is low, but that there are such a large number of producers on the low end of the income scale and only a few at the upper end.  Although the small producers may share the same  percentage increase in returns as the larger quota holders, the producers with large quotas are receiving the larger absolute amount, because returns are based on shipments of produce.  The disparity in net returns between the large  commercial operators and the small farmer must increase as the owners of the larger production units are generally the only ones that are able to finance the purchase of additional quota and equipment.  In a l l fairness i t must be stated  that the Poultry and Egg Boards with their quota limits are creating an environment in which the smaller producer can attain the size of an economic unit. Pooling as a means of distributing returns within an agricultural industry w i l l overcome one of the causes of disparity among producers.  The B.C. Milk  Board, the Egg, Fruit, Vegetable and Mushroom Boards use pooling of returns in conjunction with price discrimination. Pooling is used by these boards to prorate the returns from a l l markets to the producers based on the quantity, grade, variety, and size of produce shipped. Competition. - Marketing boards are limited in the extent to which they can raise prices, and therefore incomes, thwarted as they are by competition from outside of the regulated area, that is from other provinces or from foreign countries.  Frequently, delegations petition the Federal Government asking them  for protection in the form of t a r i f f s .  In this connection i t should be mentioned  that the Vegetable Boards and the Fruit Board are particularly vulnerable to outside competition, since large quantities of imported produce w i l l substantially  -180  -  increase supply available to consumers and, as a result, depress the local market prices.  Especially the large quantities of soft fruits and potatoes  being imported from the United States, decrease the effectiveness of the respective boards.  As, to a large extent, climate, for instance California,  aids the producer in having his produce on the market before the British Columbia crops are ready, the foreign shipper can reap the benefits of the early market. The Broiler Board with i t s import orders has succeeded so far in controlling imports from other provinces, and the Turkey Board by means of gentlemen's agreement i s practicing supply management on the national level. Frequently, the egg producers feel the impact of price competition which stems mainly from egg shipments from other provinces. The B.C. Milk Board, on the other hand, is fortunate because fresh milk is bulky in proportion to value and cannot be shipped economically over very great distances.  Dairy producers lobby the government to protect them from competition  in the form of substitutes not derived from cow milk. Cranberries produced in British Columbia, are mostly a l l shipped to the international agency in Seattle (Washington), and are then marketed, jointly with the U.S. product, from there.  The Canadian market for cranberries is  small relative to the volume produced in British Columbia. The grape growers are protected by the ruling of the B.C. Liquor Control Board which requires that local grapes be purchased before importation of grapes is allowed. To the Mushroom and Oyster Boards imports are not sufficiently large to be of any major concern.  It seems apparent that competition can seriously restrain  the controlling powers of a marketing board; especially the total market supply  - 181 seems to escape i t s control.  Could the board effectively control the total  supply, i t could - as a result - raise the price of the commodity. Stability. - If the producer can be assured of a stable income he can then make long range plans with some degree of certainty.  Stability creates economic  security which may offer the producer the needed incentive and financial security to increase the size of his operation so that i t becomes a viable economic unit, and to adopt the latest technology to this end.  Given these  beneficial circumstances, credit will become easier to obtain from the various lending institutions.  Marketing boards constitute a real countervailing power  in a market characterized by only a few buyers, and virtually guarantee producers a minimum price for their product, which assurance gives them a greater feeling of economic security.  The use of quotas by some marketing  boards provides short-run stability, which has the effect of increasing security in resource-use and planning. Costs. - There can be no question that costs of production have risen, particularly where marketing quotas are used under the aegis of the Poultry and Egg Boards, the B.C. Coast Vegetable, Cranberry and Milk Boards.  The  broiler and milk quota are explicit costs in that they are applied to a unit to be produced or marketed.  The other quotas mentioned tend to be included in  the price of a production unit.  A l l marketing board expenses incurred by the  producer must be recouped by the sale of the product.  Rising production costs  result in climbing consumer prices. Marketing boards with quotas sought to minimize uncertainty in production planning.  The Broiler and Egg Board, however, sometimes allow a producer to  market only a percentage of his fixed or basic quota during some time periods, This maximum tends to sustain excess capacity, which exerts an upward pressure  - 182 on production costs. To protect their members, the marketing boards are limiting the right to produce to a select group of individuals. But a barrier to entry protects not only the efficient but also the inefficient producer.  Only the Poultry and  Egg Boards have established a maximum level for producer quota holdings. other boards have set no maximum that anyone grower may hold.  The  The Poultry and  Egg Boards have a policy to bring the farms up to the size of an economic unit, (which means a size that will provide the family with an adequate living standard).  The maximum level for producer quota holdings seems to be  established mainly for the sake of preserving the family farm and establishing an economic unit, with no regard to the optimum scale of plant. A restrictive quota policy may not lead to the lowest average costs and the most efficient production, particularly when quota is transferrable only with a production unit.  The Broiler, Egg, Turkey and Cranberry Boards currently  enforce this quota policy. When growing units are confined to areas with high land values, the opportunity costs of production are higher.  It also may  happend that a producer no longer wishes to produce the commodity but does want to vacate his homestead. among fewer growers.  In such an event the aggregate returns are distributed  The circumstances that only the sale of a farm makes the  transfer of a quota possible, may lead to delapidated structures, rather than modern, efficient production units. Consumers Price. - The existence of marketing boards generally means higher prices to the consumers.  The maintenance of higher prices to producers, results in higher  price at the r e t a i l level, that i s assuming the marketing margins to remain constant or to increase.  The practice of price discrimination signifies that  - 183 the price paid by consumers i n one market i s higher than the prices paid by consumers in another market for a similar product, the difference in price being greater than justified by differences i n costs. Price discrimination is exercised by the Egg, Fruit, Milk, Mushroom, and Vegetable Boards.  The  prices in the more distant markets for f r u i t , vegetables, and eggs tend to be lower than i n the local markets, after adjustments have been made for transportation costs. Farmers receive one price for products such as milk, f r u i t , and eggs when they are used for the fresh market, but a different price when they are used for processed products.  The difference in price i s greater  than differences in production costs. The marketing boards by establishing barriers to entry, are able to enhance consumer prices.  Supply of the product i s controlled by quotas and  interregional barriers to trade, which controls enable the marketing board to raise the price of the product.  A l l boards, possibly with the exception  of the Oyster and Mushroom Boards maintain some form of barriers to entry other than general t a r i f f s . Marketing. - Consumers have benefited from a longer marketing season than has been the case for local fresh products.  The Vegetable and Fruit Boards have  through their designated agencies been able to provide storage f a c i l i t i e s , for these otherwise seasonal products.  Other boards, namely the Broiler and Milk  Boards have been able to stabilize the flow of product onto the market. The Milk Board, through the quota system, has been able toe ensure that a f a i r l y even supply of high quality milk is available a l l year.  Similarly, the Broiler  Board (by cycling production) has been able to provide the processor with an even flow of broilers.  This action of the Broiler Board provides the processor  with a lower average cost, but i t also provides the consumers with a good  - 184 supply of fresh broilers throughout the year.  The consumer's interest in a  lengthened marketing season and constant supply of fresh product does not seem to be as large (as prominent) for other products.  The Fruit Board and  to a lesser extent the Vegetable Boards also maintain a steady flow of product to the consumer, by the expedient of adjusting the product standards to the yield of that particular year.  In a year of poor quality produce or low  yields, the quality requirements are made less stringent. To see product that is graded and standardized seems common to most consumers now.  The action of grading and standardizing i s , in fact, one of  the techniques employed by the marketing boards to increase the demand for the product.  Different varieties, grades, sizes and packagings are offered to  satisfy consumers' needs; in particular, witness the large assortment of packages of fruit available from the interior of British Columbia, and, to a lesser degree, the variety of vegetables from the two Vegetable Boards. A l l products under the various boards are offered to consumers in several grades and/or sizesof product as well as in different sizes and kinds of packaging. Research programs by the agencies of the Fruit and Cranberry Boards have resulted in the consumer having a broader range of. processed products to choose from.  Product development i s especially notable when i t provides a  market for culled fruits which do not meet the requirements for conventional consumption.  The introduction of wines and liqueurs made of cull cherries and  pears are good illustrations of such product development. A l l the boards, possibly with the exception of the Grape and Oyster Boards, attempt to shift the demand curve by means of advertising and promotion.  To  assess quantitatively the effects of the various advertising promotional programs is very d i f f i c u l t , partly because of the d i f f i c u l t y encountered in attempting  -185  -  to isolate these effects from such variables as population growth, increases in disposable income, and changes in the price of substitute products.  These  promotional programs attempt to increase demand by creating consumer awareness of the product, by encouraging impulse buying, and by suggesting new or expanded uses of the product by the provision of original recipes or by other means. Trade The trade also is affected by marketing legislation.  The B.C. Natural  Products Act, by providing the various marketing boards with the power to designate their respective agencies to pack, store, and market the regulated products, may have resulted in the loss of livelihood for some individuals who were engaged in these activities prior to the formation of the agency. The marketing boards that have a single selling agency are the two Vegetable Boards, the Fruit Board, the Mushroom Board, and the Cranberry Board.  The  B.C. Interior Vegetable Board and the Fruit Board rely on packing houses and shippers to pack and to provide some product storage.  The remainder of the  boards with a single selling agency, have the agency pack, store, and market the product.  To the extent that these agencies can achieve economies of scale,  and rationalize marketing services, they are an asset to society, because average costs are lowered.  The Fruit Board, or in particular i t s agency,  B.C. Tree Fruits Ltd. has been under pressure from some growers to cut costs by reducing the number of packing houses or have them specialize in a particular type of pack. regard.  In the future, some changes may be expected in this  The B.C. Coast Vegetable Board, however, claims considerable cost  savings when i t s expenditures are compared to those of a similar agency in private enterprise.  - 186 Further Study The scope of this study is limited because of the constraints on time and the availability of data.  In spite of these limitations, however, this  section will outline four broad areas for further investigation as follows: 1.  to establish an improved data base,  2.  to study in-depth the various marketing boards,  3.  to analyse the effects of t a r i f f s and non-tariff barriers,  4.  to search for alternative means of marketing agricultural products and enhancing producer incomes.  Marketing board research could be extended i f more relevant data were available that would permit a more thorough analysis of the marketing boards.  The effects  of the Broiler Board are by no means fully understood or quantified; similarly the effects of the other boards should be analyzed.  The economic implications  of barriers to entry, whether they are t a r i f f s or non-tariff barriers are not fully comprehended,at least not quantified.  Finally, research should continue  to develop and evaluate alternatives (other than marketing boards) for the marketing of agricultural products and to intensify the search for solutions to a host of agricultural problems. In the f i r s t place then the problem of the lack of available data has two aspects:  f i r s t , what data are relevant, and second, how to obtain these data.  What constitutes relevant data depends on what issues are deemed important by the analyst and on his point of view.  From the producer's point of view, data  on prices he receives for his product and data on his costs of production are important because they are directly reflected in his income.  From society's  point of view, the optimum output and the optimum allocation of resources is important.  Data should be collected on a l l the variables the boards can  - 187 influence or control, including data on the price of the products under the board's jurisdiction, on the number of producers and the number of economical units.  To analyse the effectiveness of a board, one should examine the  economical environment in which i t operates, with the inclusion of the demand for the product in question, the costs of producing this product, and the structure of the market within which this product is bought and sold. Having decided what data i s relevant, the question is how the required data may be obtained.  To be sure, some data are collected by the boards, but they  will not necessarily publicize a l l this data.  Some historical data, however,  are obtainable from public sources such as government statistics.  Problems  may be encountered with government statistics when one attempts to analyze the effectiveness of the marketing boards.  For instance, the geographical area  from which general statistics are obtained may not coincide with the area under the jurisdiction of the board.  It also may happen that more commodites  are grouped together in a statistical classification than are covered by the board.  Also the trend observed for one commodity or part of the area may not  be representative of the commodity or area in question.  It i s perhaps advisable  that the B.C. Marketing Board or another independent agency collect data on the effects of each board.  These data can then be analyzed and a better under-  standing of marketing boards and their economic effects should ensue. The second main area of further study would be a more comprehensive analysis of the B.C. Broiler Board, and of the other boards.  A more detailed analysis  of the Broiler Board may require more research into the production costs in British Columbia and the variations within this province.  Such an analysis  should lead to a more detailed knowledge of the economies of scale available to producers, and a deeper understanding of what constitutes an economically  - 188 efficient unit.  -  It would also be of interest to compare the percentage of  inefficient units found in an uncontrolled market as compared with those in a controlled market.  An analysis in depth of the Broiler Board should, perhaps,  also include making attempts to obtain more reliable estimates of the various demand elasticities.  The Board has many methods at its disposal to meet i t s  objectives, of higher and more stable producer net incomes and  preservation  of the family farm but i t is questionable whether the f u l l ramifications of employing these methods is known. The indirect effects of the methods available to the Board on other industries and members of society have not been explored to the f u l l extent. The other boards have in this study been analyzed even more generally than the Broiler Board.  Before conclusive statements can be made on the effective-  ness of the other boards, detailed analysis would have to be made of each board, perhaps in a manner similar to that proposed for the Broiler Board. The third area of concern is t a r i f f s and other non-tariff barriers, which producers frequently ask to have implemented or increased; but i t must be remembered that trade barriers have broad economic implications. to be explored may be such as:  Questions  Are they really necessary or even desirable?  What are the economic effects not only on the producers of the particular commodity, but also on other industries and citizens of the regions concerned? These questions lead to research into agricultural trade and topics such as trade liberalization. The fourth area for further research should include studies that investigate alternatives (besides the marketing boards) of alleviating economic and social problems associated with agriculture.  The effects of alternative means could  - 189 then be compared to the effects of marketing boards.  This area probably should  include an analysis of government agricultural support programs, for instance deficiency payments.  At any rate a comprehensive analysis of any program  established to alleviate the agricultural problems should include a social as well as an economic analysis. Whether the instigators of boards recognize i t or not, marketing boards are a way of providing social welfare and reducing crisis situations in agriculture.  Only a p o l i t i c a l decision can be made as to the desirability of  such a program.  It might be useful to calculate the total cost of the program  to the consumers and then determine some idea of the social costs and heartbreak suffered by producers where controls have not been instituted. The point can not be decided but the question can be asked.  The  majority  of the economy to which the producer sells and from whom he buys is not a free economy. Why  ask him to compete in the free market.  - 190 BIBLIOGRAPHY Arcus, Peter L. The Farm Products Marketing Agencies Act of 1972: A Summary. Vancouver: University of British Columbia, 1972. (Mimeographed.) British Columbia. Natural Products Marketing (British Columbia) Act. R.S. 1948, c. 200, S . l . British Columbia. Natural Products Marketing (British Columbia) Act. B.C. Coast Vegetable Scheme. British Columbia Interior Vegetable Scheme, 1939. British Columbia Tree Fruit Marketing Scheme, 1960. British Columbia Broiler Marketing Scheme, 1961. British Columbia Oyster Marketing Scheme, 1964. British Columbia Turkey Marketing Scheme, 1966. B.C. Mushroon Scheme. British Columbia Egg Marketing Scheme, 1967. British Columbia Cranberry Marketing Scheme, 1968. B.C. Grape Marketing Scheme. Regulations. British Columbia. Milk Industry Act. 1956, C 28, S.l. British Columbia. Royal Commission on Milk. Queen's Printer, 1955.  Report.  Victoria,  B.C.:  British Columbia. Royal Commission oh the Tree Fruit Industry of British Columbia. Report. Victoria, B.C.: Queen's Printer, 1958. B.C. Broiler Marketing Board, General Orders 1963. June, 1963. .  Cloverdale, B.C.,  1970 Annual Report.  A Brief to the Select Standing Committee on Agriculture, Feb. 24, 1971 B.C. Coast Vegetable Marketing Board. B.C., Mar. 1960. 1935-1960.  General Orders (1960).  Richmond,  _. Review of Commencement and Operations Richmond, B.C. .  Annual Report.  B.C. Coast Vegetable Co-operative"Association. B.C. Cranberry Marketing Board. B.C. Egg Marketing Board. 1970.  1970. Manager's Report.  1970.  General Orders.  Standing Order 1970.  Clearbrook, B.C., April,  - 191 -  B.C. Fruit Board. British Columbia Fruit Board Provincial Marketing Regulation. Kelowna, B.C. June, 1971. . on Agriculture.  A Brief to the Select Standing Committee  Mar. 22, 1972.  B.C. Grape Marketing Board.  Orders 1971. .  Kelowna, B.C.  1971 Annual Report.  . A Brief to the Select Standing Committee on Agriculture. Mar. 13, 1972. B.C. Interior Vegetable Marketing Board. British Columbia Interior Vegetable Marketing Board Provincial Marketing Regulation. June, 1969. B.C. Milk Board.  General Order 46. .  B.C. Mushroom Marketing Board. Sept. 1966.  Vancouver, B.C., May,  1970.  1970 Annual Report. General Orders.  Vancouver,  B.C. Oyster Roard. General Regulations. Nanaimo, B.C.: Printing Ltd., Jan. 1968.  B.C.,  Gateway  B.C. Tree Fruits Industry. 1970 Annual Report. B.C. Turkey Marketing Board. Aug. 1966.  General Orders 1966.  Cloverdale, B.C.,  Comanor, W.S. and H. Leibenstein. "Allocative Efficiency, X-Efficiency and the Measurement of Welfare Losses.". Economica, XXXVI (August, 1969), pp. 304 - 309. 1  Canada.  Agricultural Products Marketing Act (Canada), 1949.  "Cheap Import Labelled Chief Problems of B.C. Agriculture." Country Life in British Columbia, Vol. 58, (February, 1972), p. 1. . Cochrane, W.W. Farm Prices Myth or Reality. of Minnesota Press, 1958.  Minneapolis: University  Drummond, W.M. "The Marketing of Whole Milk", The Canadian Journal of Economics and Political Science, III (August, 1935), pp. 394 - 405. . "Price Raising in the Dairy Industry", . The Canadian Journal of Economics and Political Science, I (November, 1935), pp. 551 - 567.  - 192 Dunbabin, Margaret I., and W.E. Walker. Marketing Boards under Provincial Legislation Canada 1957. Ottawa: Canada Department of Agriculture, Economics Division, July, 1957, pp. 55 - 78. Emmery, M.K. The Outlook for Poultry Meat in Canada to 1980. Ottawa: Canada Department of Agriculture, Economics Branch, December, 1967. Farrell, M.W. "Experience with Provincial Marketing Schemes i n Canada", Journal of Farm Economics, XXXI (November, 1949), pp. 610 - 626. Federal Task Force on Agriculture. Supply Management and National Marketing Boards. Ottawa: Canadian Agricultural Congress, 1969. Fredricks,  Leo J. Competition in Agriculture: A Case Study of a Marketing Board. A thesis for a Master of Science i n Agriculture, Dept. of Agr. Econ., U.B.C., April 1965.  H i l l , J.T.  "Economics of Vertical Integration in the Canadian Poultry Industry", Canadian Journal of Agricultural Economics, XIV(2), pp. 32 - 53. . "Structure and Concentration in the Canadian Poultry Industry", Canadian Farm Economics, I (2), 1966, pp. 5 - 13.  Humanen, R.R., M.H. Hawkins and T.W. Manning. Vertical Integration and Concentration in the Alberta Broiler Industry. Edmonton: The University of Alberta, The Department of Extension Agricultural Economics and Rural Sociology, Res. Bull. 8 (Aug.)>1970. Loyns, R.M.A. "The History of Marketing Boards", Canadian Journal of Agricultural Economics, XIX (July, 1971), pp. 35 - 46. Mehren, George L. "Some Aspects of Agricultural Control", Journal of Farm Economics, XXX (February, 1948), pp. 29-42. Norris, T.G. "The Natural Products Marketing Act 1934", The Canadian Journal of Economics and Political Science, I (August, 1935), pp. 465 - 481. Perkin, G.F. "The Ontario Marketing Boards", Journal of Farm Economics, XXXIIINov. 1951, pp. 968 - 984. Poetschke, L.E. and Wm. Mackenzie. The Development of Producer Marketing Boards in Canadian Agriculture. Edmonton: University of Alberta, 1956. Walker, H.V. "Marketing Boards and Quota Policies for Canadian Farm Products: an Appraisal of Performance", Canadian Journal of Agricultural Economics, XVI (2), 1968, pp. 1 - 12.  - 193 Wilcox, Clair. Public Policies Toward Business. 3rd ed. Homewood., I l l i n o i s : Richard D. Irwin Inc., 1966. Woods, A.W. "The Marketing Board Approach to Collective Bargaining", Canadian Journal of Agricultural Economics, XV (2), 1968, pp. 1367 - 1374.  


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