As part of its commitment to develop a Farm-Gate Minimum Live Price, based on a cost of production formula that is credible, defensible and transparent, the CFO Board undertook a disciplined and complete review process in collaboration with the Association of Chicken Processors (AOCP). This process was supported by relevant technical expertise to ensure that the analysis of the required cost elements for growing chicken in Ontario was fair and unbiased.
Farm-Gate Minimum Live Price is based on directives provided by the Ontario Farm Products Marketing Commission
The development of the cost of production formula and the on-going establishment of the farm-gate minimum live prices are based on directives provided by the Ontario Farm Products Marketing Commission in April 2013. These directives are:
Efficiency: the farm-gate minimum live price should provide efficient producers, not all producers, a fair return over time
The formula is to be credible, defensible and transparent
The minimum farm-gate should provide a reasonable return on investment
The rate of return should be reflective of risk
A fair return for labour is to be provided
Quota is to excluded from the calculation of cost of production and minimum farm-gate live price
No proxies are used – costs are based on actual, measured data wherever reasonably possible
The formula must reflect not only current efficiencies and costs, but also have a mechanism to update changes in both efficiencies and costs
Farm-Gate Minimum Live Price Governance
The current Regulation 402 under the Farm Products Marketing Act was amended on January 14, 2015. It provides a cost of production formula that forms the basis of the Farm-Gate Minimum Live Price, and specifies how often the constituent cost elements in the formula are to be updated.
The regulation also allows for negotiation, and if necessary, arbitration. It establishes a Negotiating
Agency consisting of two parties: CFO Board and representatives of licenced Ontario chicken processors.
Every eight weeks, the two parties can negotiate the Farm-Gate Minimum Live Price for chicken by applying the formula in Regulation 402 and negotiating adjustments to the various components of the formula in accordance with the regulation. The agreed Farm-Gate Minimum Live Price is brought into force by an order of the Farm Products Marketing Commission.
The regulation provides for arbitration in the event that no agreement is reached.
Frequently Asked Questions About the Farm Gate Minimum Live Price
What is the Farm-Gate Minimum Live Price?
The farm-gate minimum live price for chicken in Ontario is established under R.R.O 1990, Regulation 402 of the Farm Products Marketing Act and brought into force by the Ontario Farm Products Marketing Commission every 8 weeks.
The regulation provides a formula for the farm-gate minimum live price which is based on the cost of producing a kilogram of live conventional chicken.
The regulation also establishes a Negotiating Agency and allows for negotiation, and if necessary, arbitration.
CFO, which constitutes part of the Negotiating Agency, worked collaboratively with the Association of Ontario Chicken Processors during much of 2013 to lead and champion the development of the cost of production that underpins the regulation.
What is the Methodology for Measuring and Calculating Cost of Production?
The cost of production formula built into the regulation was developed in 2013. The cost of production in Ontario has been determined using a robust survey of actual on-farm costs, as well as by utilizing an efficient farm model to derive costs that cannot be measured directly.
Third party firms with expertise in statistics and farm financial accounting were used to collect and analyze Farmer Survey data independently, with a focus on data accuracy and consistency.
How was the Farmer Survey conducted and the Model Farm concept developed?
A survey of 205 randomly selected Ontario chicken farmers was used to measure roughly 80% of costs in the farm-gate minimum live price. The survey was conducted in 2013 to collect 2012 costs.
The relatively large sample size of Ontario farmers (approximately 20%), coupled with an exceptionally high response rate (approximately 90%), has provided highly credible and reliable survey results.
Not all production costs can be measured reliably using on-farm financial data. The remaining
20% of costs have been determined using a Model Farm
with model parameters established using actual farmer data where possible.
A Model Farm is a hypothetical farm with some defined characteristics:
*excluding farms below the minimum quota size
Farm size is the average size for Ontario farms* in 2012
Barn density is the Ontario median value for 2012
Production cycle length of 8 weeks
A land base of 5.74 acres
How is the Farm-Gate Minimum Live Price kept current?
The cost of production included in the farm-gate minimum live price formula will be re-surveyed and the formula reviewed within five years of establishing the current formula – in 2018 or sooner.
In the meantime, the farm-gate minimum live price is kept current with frequent updating of costs and two annual adjustments.
The two largest costs, feed costs and chick costs, are updated using third party cost information every eight weeks. Most other costs are updated annually using relevant Statistics Canada indexes.
In addition, two adjustments are made annually to keep the formula reflective of cost changes:
The annual Volume Adjustment accounts for changes in the absorption of fixed costs as production volume expands or contracts.
The annual Feed Efficiency Adjustment anticipates improvements in feed conversion and passes these improvements by lowering the farm-gate minimum live price.
What is the reference bird size for which the Farm-Gate Minimum Live Price is calculated?
The farm-gate minimum live price is for conventional chicken in the weight category of 2.15kg to 2.45kg, and reflects the price calculated for the reference bird size of 2.225kg.
Farm-gate minimum live prices for conventional chicken in other weight categories are determined off the base weight category using established spreads.