Allocation Of Ontario's Supply-Managed Commodities To Processors

Table of Contents

1. Introduction
2. Broiler Hatching Eggs and Chicks
3. Chicken
4. Dairy
5. Eggs 
6. Flue-Cured Tobacco
7. Turkey

1. Introduction

The broiler hatching egg, chicken, eggs, dairy, flue-cured tobacco, and turkey industries in Ontario operate under supply-management systems. The production and marketing of these commodities are controlled through a quota system by their provincial commodity marketing boards. The boards inform individual producers of the volume of product they can produce and/or market in each production period. These boards also set or negotiate the minimum prices paid to producers by primary processors. Ontario's marketing boards are elected, controlled and financed by producers of the regulated commodities.

Each supply-managed industry has a unique process through which processors source and purchase their requirements for the raw commodity. This factsheet outlines these processes.

2. Broiler Hatching Eggs And Chicks

Broiler hatching egg producers ship to hatcheries under contract. Producers must have a contract, along with quota, in order to produce and market hatching eggs. There is a minimum notice period if a hatchery wants to change producers. Hatcheries pay the regulated price that is set by the Ontario Broiler Hatching Egg and Chick Commission and based on cost-of-production calculations. Hatcheries sell chicks directly to chicken producers. Chicken producers are individually responsible for obtaining the chicks required for their production.

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3. Chicken

In December 1999, following a public hearing, the Ontario Farm Products Marketing Commission (OFPMC) directed the Chicken Farmers of Ontario (CFO) to amend some of its policies and regulations in order to revise the method for allocating live chicken to Ontario processors.

Currently, each Ontario primary processor has a base level of chicken that they are eligible to buy, with the level adjusted up or down each period as the production level changes. However, in the future, individual processors will be able to request the amount of chicken they desire to fill their estimated market needs. Each processor will receive the amount of chicken requested as long as the Chicken Farmers of Canada (CFC) allocates Ontario the total amount of production quota it requests. If the CFC allocates less than the full amount requested, individual processor's shares will be based on their historic purchase pattern.

CFO will continue to allocate Ontario's share of national production to quota holders. Processors will continue to sign up producers of their choice to supply the chicken, up to the maximum of each producer's allowed production. Processors tend to contract with the same producers each production period, those that they have found to be dependable, are able to produce to the individual company's specifications, are close to the processing plant, etc.

CFO currently negotiates the minimum price paid to producers with the Association of Ontario Chicken Processors (AOCP). However, the OFPMC has directed that CFO and industry partners develop a formula-based live chicken pricing regime.

Currently, Ontario processors can obtain some chicken above their normal allocations if the chicken will be exported. Individual processors desiring this extra chicken submit a request specifying the volume they want and the price they are willing to pay. Producers volunteer to produce a specific volume of chicken at a certain price. With certain limitations, the two are matched, where possible. However, in its December ruling, OFPMC directed CFO, in conjunction with its industry partners, to establish an export regime that provides for direct price and volume determination between individual processors and producers.

4. Dairy

The Dairy Farmers of Ontario (DFO) purchases all milk from Ontario producers and arranges the transportation to processors. DFO sells the milk to processors and pays the producers.

Raw milk used to make fluid milk and cream (milk and cream that consumers drink) is supplied on demand to primary processors in Ontario. There are no supply constraints on processors wanting to produce these products.

Milk for some industrial products (ice cream, yogurt, and cottage cheese) is also supplied on demand to processors. This milk comprises part of the province's Market Sharing Quota (MSQ). The other part of the MSQ is often referred to as the residual milk supply. MSQ is the total amount of industrial milk and cream that Ontario has been allocated to produce by the Canadian Milk Supply Management Committee.

Ice cream manufacturers must also have milk entitlement quota (MEQ). MEQ, which is readily available from DFO at no cost, requires processors to source half of their butterfat requirements from skim-off. (Skim-off is the butterfat that is removed when whole raw milk is processed into homogenized, 2%, 1% and skim milk.)

Other industrial products (primarily cheeses, butter, and evaporated and powdered milks) are made from the residual milk supply. To obtain a portion of the residual milk supply, an Ontario processor must have Plant Supply Quota (PSQ). Those wanting new or additional PSQ must obtain it from another Ontario processor.

The regulated price that primary processors pay for milk varies with the end use of the milk. For example, processors pay less for milk that ultimately goes into the manufacture of ice cream than for milk that is processed into fluid milk.

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5. Eggs

Egg producers ship to the grader of their choice, generally the closest one. Graders pay producers the regulated price for all eggs. In Ontario, eggs not required for table use are purchased from the graders by either the Canadian Egg Marketing Agency (CEMA) or the Ontario Egg Producers, and are redirected to processing plants for the industrial market for use in baked goods, mayonnaise, cake mixes, etc. The prices for both of these latter transactions are set through formulas. The price paid by processors is based on the landed price of U.S. eggs.

Producers pay levies to fund the movement of eggs from the higher-priced table market to the lower-priced industrial market. Historically, the industrial market was viewed as a surplus market but has now evolved to a distinct and increasingly important market. In recognition of this change, XEMA now guarantees processors that they will receive a large percentage of the eggs they require to meet their industrial market needs. If there are not enough domestic eggs to meet the guaranteed level, CEMA will import the additional eggs.

6. Flue-Cured Tobacco

Cigarette manufacturers and other buyers of Ontario flue-cured tobacco must purchase it through a Dutch Clock Action system. The Ontario Flue-Cured Tobacco Growers Marketing Board (OFCTGMB) operates an auction, in Tillsonburg. Each year, the auction run from mid-October until the following March or April.

To buy tobacco, a buyer must have a 'button'. These buttons must be purchased from OFCTGMB or leased from another button holder.

Under the Dutch Clock Auction system, the clock is started at a determined price to open the budding. The clock then ticks down to progressively lower prices until it reaches a price that a buyer is willing to pay for that particular lot of tobacco. To stop the clock and buy the tobacco, purchasers push their button.

There are floor prices (minimum grade prices) for purchases of tobacco. There is a floor price for all purchases of each of the various Grade A tobaccos. For each of the Grade B-a and Grade B-2 tobaccos, the minimum grade prices apply tobacco that will be used domestically but not to tobacco that will be exported.

7. Turkey

Unlike chicken, turkey processors do not have a plant allocation system. Processors sign up producers of their choice, up to maximum of each producer's marketing quota. If for some reason, a processor can not obtain turkey, the Ontario Turkey Producers' Marketing Board (OTPMB) could intervene. However, it has never had to use this power. Processors pay at least the regulated price that is set by the OTPMB with input from processor representatives.

Similar to chicken, extra turkey can be produced to serve the export market. Turkey processors receive 're-grow' credits for turkey and turkey products that are exported. Processors contract with producers to have the re-grow birds produced at the domestic price for the domestic market.

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