Report of the Independent Egg Marketing Survey
by Arthur Garrish

 

            These three points are very largely responsible for the position in which the Board now finds itself and have done much to blur the recognition of the solid accomplishments of the Board and the degree of stability it has brought to the industry as a whole.

            Dealing first with the trafficking in quotas, if the Board found that the provisions as agreed to by the Joint Poultry Committee “that quotas would at all times remain the property of the Board with no monetary value attached thereto”, (which provision was incorporated into the Scheme) was, in their opinion, unrealistic or unworkable, any steps to alter or amend this should only have been taken after full consultation with the producers of all areas leading up to a request to the Minister for an alteration in the terms of the Scheme. It appears that after a limited degree of consultation with the producers of the Lower Mainland, a method was devised for the transfer of quota by the sale of “layers”. It is conceded that almost invariably these “layers” are birds that have finished their useful life and are headed for the killing plant, and this can only be described as a device to circumvent the clear intent of the Scheme. Quite possibly the transfer of quota can only on the legitimate scale of a production unit (this seems clearly to be necessary and will inevitably enhance the value of the production unit), is too restrictive and some other method of transfer is necessary. However, I feel that the transfer of quotas by the sale of “layers” is detrimental to the best interests of the producers. The quota system, after all, is only a marketing tool; it exists only because the Board exists and if the Board disappeared likewise. The more quotas come to be regarded as personal assets worth so many thousands of dollars to the individual, the less real freedom the Board has to use the quota system for its true purpose as the major instrument in its marketing program. Possibly the most important aspect of this has been the fact  that in becoming deeply involved in circumventing the provision of the Scheme is regard to the ownership of quotas, the Board has suffered a loss of respect among many producers. It has aroused the suspicion that if one basic point of agreement in the original plan on which the Marketing Board concept was sold to the producers can be so easily circumvented, what is to stop other provisions being disregarded in the same manner until nothing is left. Certainly this situation should be remedied. Either the Scheme should be amended to recognise what is in fact happening, or the Board should be directed to return to the original concept and eliminate the trafficking in quotas through the sale of so-called “layers”. This decision would have to be made at some level above the Board because it is, in my opinion, impossible for the board as presently constituted to reverse its position. A very tempting solution would be to simply amend the Scheme in line with what is now taking place, but in the long run this seems certain to reduce or eliminate any flexibility in the operation of quotas by the Board and to make more difficult the development of increased production in the outlying areas of the Province which are now in a deficit position. In fact, if the federal marketing scheme for eggs comes into operation and produces the same degree of stability on the national marketing scene that the B.C. Egg Board has brought to provincial egg marketing, it is quite foreseeable that the going price for weekly quotas could rise in a very few years to the neighborhood of $1,000.00 per case. Those who might scoff at this prediction should reflect on how the price per case has risen in three years from a relatively nominal amount to its current level of around $350.00 per case.

            One major result of the active trading in quotas and the price at which they are selling, has been to re-open the whole question of the basis on which they were originally issued. This was the subject of comment in the majority of briefs and a tremendous amount of discussion was to devoted to this matter. The original basis for issuing quotas was to take the marketing records for any twelve month period between June 30th, 1964 and June 30th, 1967 for each registered producer and relate the total of these to the estimate of Market Requirements. The “Pre-Scheme Marketings”, as they were called, were to determine very largely the amount of quota to be issued. However, a number of producers had established egg production facilities or added to existing facilities during the period the Egg Marketing Scheme was being developed and the “Pre-Scheme Marketings” did not provide them with quota to cover these facilities. As a result of representations to the then Minister of Agriculture, the Hon. Frank Richter, he directed the Board to make provision for quota of these producers. A formula was devised based on the marketings during November 1967 and this formula was used where needed to modify the quotas of producers as determined by their “Pro-Scheme Marketings”. While it is true that some producers in all three areas of the province benefited from this provision, it is indisputable that by far the greatest portion of this additional quota accured to the producers in the Fraser Valley. While it is perfectly true, as the Egg Board argued in its final submission on August 1st that there is nothing “immoral, unethical or illegal in holding quotas based on Post Scheme Marketing qualifications” (the November 1967 formula), it is also quite obvious that the producers in the Fraser Valley had a much keener appreciation of what was going on, of what the Egg Board and its quotas would mean if it were successfully operated and had very much sharper pencils than some of the producers in the remoter areas. As a result of representation by interior producers, an additional issue of quota was made to some interior producers early in the Spring of 1968 based on information supplied by the producers. However, the letter of March 26th, 1968 sent by the Board to all Interior Registered Producers soliciting this information never once mentioned the possibility of quotas being issued on the basis of this information, although it could be argued that it is implicit in the letter. Once again those who understood what was going on reaped the benefit and once again the Board will, no doubt, contend that there is nothing “immoral, unethical or illegal” in what happened/ While tactics of this sort might be accepted in a private operation where participation is voluntary, I happen to feel that a Marketing Board – any Marketing Board – has an over-riding obligation to make sure that it informs all of its producers in the simplest and clearest language what it is doing and what it is intending to do. Had this letter stated quite clearly that this was an opportunity for interior producers to increase their quotas and that it was the last such opportunity and that from here on in quota was going to cost a substantial sum of money per case, the response would have been dramatically different.

            The original concept of basing quota on Pre-Scheme Marketings was workable and certainly as fair as any other that could be devised. How closely the original basic quota reflected actual marketing requirements would be difficult to determine, and no time was spent in this pursuit. It is obvious that quota based on Post Scheme Marketings plus the additional quota issued to some interior producers altered the relationship between the total quota and actual market requirements to the extant that it has not been possible to issue or create any new quotas in the whole intervening period.

            The matter of quota being transferred between areas within the Province has been the subject of changes of policy on the part of the Board. The original intention was that quotas could only be transferred within area.  This was altered to allow for transfers between areas. When it was realized that this was resulting in a transfer of quotas from Vancouver Island to the Fraser Valley, the policy was again altered to prevent the transfer of further quotas into the Fraser Valley area. The Board has been very reluctant to tackle the question of revocation of quota. Some quota reverted to the Board in the early days of the Scheme from producers that had gone out of business. Any general, across the board, reduction of quota revocation of quota is apparently not considered acceptable by the Board. Instead the Board has endeavored to adjust to market requirements by varying the percentage of quota each producer may market from month to month. The main effect of this has been to vary the number of eggs going into Quota Pool as compared to the Excess Pool. It was argued that because of the difference in the way the eggs are handled in the two pools that it saved money if more surplus eggs were sent to the excess pool rather than the Quota Pool. Other figures submitted question the validity of this statement. Certainly the net difference in total costs is very narrow and the variation in quota appears to have been influenced more by having eggs available for shipment to “export” markets (mainly the eastern provinces) than by anything else.

            Throughout all hearings in the Interior and also on Vancouver Island, the statement was made by producer after producer that they were assured when the Board was being established they would be given an opportunity to grow with their market and that, apart from the additional quota issued to some interior producers in the spring of 1968, this had not been honoured. Instead they are now told by the Egg Board that if they wish to increase production to meet their market requirements they must purchase additional quota at a going price of around $350.00 per case. Some have purchased quota from other producers going out of business; some have purchased quota in the Fraser Valley and transferred it to the Interior; some have succeeded in obtaining permits from the Board to increase their marketings on the understanding that they would purchase further quota as it became available; some have just gone ahead and marketed their eggs without buying additional quota of obtaining permits.

            The repeated statement by producers that they were given the assurance of being issued additional quota so that they could grow with their markets, had the ring of truth about them and I believe them. Whether of not the people who gave these assurances had any real authority to do so, is another matter. People promoting marketing schemes are invariably optimists and expect more than any such scheme can produce. If assurance of this sort would help get support in the plebiscite, then they were undoubtedly given, particularly as they were both reasonable and logical. Whatever may be the reasons for the tremendous concentration of B.C. egg production in the Fraser Valley area at the present time, long term thinking must surely concede that a distribution of production more in line with market requirements would result in better service to the wholesaler and retailer and a fresher product to the consumer. The problem is complicated by the policy of central purchasing by the larger chain stores which, in turn, gives the Fraser Valley producer and edge in the market over Interior and Vancouver Island producers. This whole question of using quota now and, in the future, to encourage production on a regional basis or to reflect existing market requirements, it is a very large one and certainly in the time available to it the Survey Group did not arrive at any final answers and it would be sheer conceit to pretend it had. One thing appears certain, if present Board policies are unaltered and in view of the almost total control which the Fraser Valley producers have over the Egg Marketing Board they are not likely to be altered by the Board itself, production will continue to be concentrated in the Fraser Valley until questions such as pollution control, zoning, and so on, forces a change in the economic pattern. It should not be impossible to devise a formula whereby expansion of production in the deficit areas can not only be permitted, but encouraged. This would be greatly assisted if the price for eggs to the breaking plants were returned to more reasonable levels and more of the surplus Fraser Valley eggs could be diverted to this outlet.

            Study must be given to a formula arrangement whereby a producer in a deficit area wishing to expand production would be able to obtain a permit from the Board, not necessarily free of charge, but certainly at a fraction of the existing quota price of $350.00 per case. Checks should be made that this is needed as a result of genuine market expansion. Over a period of time, say up to five years, this permit could be converted gradually to quota. During the conversion period the producer would be required to pay a reasonable differential service charge on the portion being sold under permit. The scale of differential service charges imposed on Interior and Island producers can only be described as excessive and are really a reflection of the depressed price of eggs to the breaking plant – a market about which these producers know nothing and cared less. The contention made by several Fraser Valley Producers that they are paying a large amount of money to provide a stable deal and to “hold the umbrella” is valid, from their viewpoint. It ignores, however, the fact that shipments of eggs to the breaking plants were part of their marketings during the qualifying periods and helped materially in establishing their present quotas which are now regarded as fresh market quota. It also ignores the fact that the large sums they calculated as being their contribution to a stable deal are again really only a reflection of a depressed breaking plant price resulting from a world wide surplus of processed egg products.

            Any changes to the quota system will require much more study than the Survey Group was able to give, but unless changes are instituted and provision made for future expansion in deficit areas, the Egg Board will continue to have a stormy career. Changes that are found by further study to be necessary should be introduced in a gradual manner. If it is politically unacceptable to make any general reduction of quota to bring it more in line with the market, varying the percentage of quota permitted to the fresh market by areas would accomplish much the same thing. Unless the Board can be brought back to the original concept that quotas are the property of the Board with no monetary value attached thereto, it is not going to be able to use the quota system with maximum flexibility and the quota system is basic to the successful operation of the Egg Marketing Board.

            The second point that brought the problems of the Board to a head is the dumping of quota pool eggs at distressed prices into the Peace River and Kootenay areas. That this happened and that sales were made of these poll eggs into these areas at prices well below the minimum producer price as set by the Board, is not disputed. No matter how the Board justifies it on the basis of meeting the competition from Alberta or Manitoba eggs, the truth appears to be that it was based on a program of capturing at any price the whole of the B.C. Egg market in anticipation of the establishment of the National Marketing Scheme. It is true that the Board devised a plan to offer protection to the quota holders in part of these areas through the pool, but as there were, in fact, no quota holders in the Peace River producers took the full brunt without any protection. In the Kootenay area one or two of the smaller quota holders had agreed to participate in the pooling scheme but only when driven to it and the two large quota holders had, up to the time of the hearings, refused to have anything to do with it. While they did not actually say so, one had the feeling that a big part of the decision to stay out stemmed from distrust of the Board and what they might be getting themselves into. Quite frankly, I find it incredible that the Board did not recognise what storm would be stirred up by their action and did not realize that the marginal gains to be achieved did not justify jeopardizing the very existence of the Board itself. Such tactics would be roundly condemned if practiced by a private business corporation and should be even more so in a Marketing Board operating a compulsory scheme under authority derived from the Government of the Province. No protection whatever was offered to the small producer (below 500 birds) even though he was required to comply with the regulations of the Board and contribute to its cost. On this point I have no difficulty recommending that steps be taken to prohibit such practices by any Marketing Board and that under no circumstances should they be allowed to use powers granted them by Government to injure a portion of their membership, however small or unimportant they may seem.

            The third point of valid criticism of the Board was the relationship between the Board and the Fraser Valley Egg & Poultry Co-op Association. Point 10 under the terms of reference directed the Survey Group to enquire into “The delegation of authority by the Board, if any, to the Fraser Valley Egg & Poultry Co-op Association to actual authority if any so delegated and relationship between the Board and that Association and its effect”. This was a subject of very much discussion throughout all of the public hearings, and it is a matter that the Survey Team has gone into in considerable depth. The question of delegation of authority by the board is very difficult to determine because, in fact, the Egg Marketing Board and the Fraser Valley Egg & Poultry Co-op Association at the operational level, appear to be virtually one and the same thing; the Egg & Poultry Co-op is for all practical purposes, the alter ego of the Marketing Board. There can be little question that the Egg & Poultry Co-op was formed at the instigation of the board to take over handling of excess pool eggs; later it has operated the quota pool as well. The use of the co-operative form of organization for this agency of the Board is, in my view, very much open to question. It may be that the Board felt that it was the only practical and workable method available to them. But again, it has caused very much suspicion and distrust throughout many areas of the Province and is one that should be clarified and altered without undue delay. The Co-op carries out pooling arrangements both in regard to the excess pool and the quote pool for the Board under the instruction of the Board and according to a set scale of charges for its services, agreed to be contract. The financial statement of the Co-op shows that this scale of changes has resulted in very substantial earnings to the Co-op which have been regarded as being the property of it members, who are only a portion of the egg producers involved in the pool. In these circumstances, it is only to be expected that those who are not members of the Co-op and are not eligible for patronage dividends from the Co-op, resent this arrangement. The argument is, of course, that membership in the Co-op is open to them, but this does not entail a fairly substantial investment. In my view this arrangement should be altered and the functions carried out by the o-op become directly the functions of the Egg Marketing Board. Certainly there can be no case made for the earnings of the Co-op accruing to any one other than the people involved in the two pools. The Co-op, or course, has made investments in plant and equipment and the retirement of the cost of these are a legitimate expense item, but after these have been provided for on a proper basis, anything over and above this should accrue to all participants in the pools. We are informed that the reason for the establishment of the Co-op as the agency owning the plant and equipment, was because of limitations placed on the board in its ability to own property and become involved in long term investments of this nature. This should be the subject of a complete review and whatever amendments are necessary should be made to enable the Board, as such, to carry out these pooling arrangements and to own whatever facilities are necessary for the proper conduct of them without the introduction of separate organization. If there has to be, for legal reasons, a separate organization, it should be directly a creature of the Board controlled by the Board and all earnings over and above costs of operation should return to the pools concerned.

            Next in importance in the public hearings was the composition of the B.C. Egg Marketing Board itself. The composition of the Board only became an issue because of controversy which developed over Board policies and the impossibility for either the Interior or Vancouver Island to alter Board policy under present circumstances. This was Point No. 12 “The Constitution of the Board and the number of members elected from the Lower Mainland, Vancouver Island and the Interior, there can be no question that the Board is quite effectively controlled by the producers of the Lower Mainland. They, or course, having some 80% of the total production, regard this as only right and proper and cannot conceive that they should in any way allow their control of the Board to be diluted by further representation from the other areas. On the other hand, the Island and the Interior people have recognized that when the chips are down, the control as to Board policy and the carrying out of Board policy is completely out of their hands. To give equal representation on the board to all three areas as was proposed at several of the public hearing, would be to ignore the fact that, at the present time, the bulk of the production of eggs is in one of the three areas and that the two other areas with the much less volume of production could effectively dictate policy. On the other hand, if the present situation is allowed to remain, inevitably the Board policies will reflect the views and the wishes of the majority of the producers presently concentrated in the Lower Mainland. If a change is to be brought about, it will certainly have to be as a result of a policy decision at some level higher than the Egg Marketing Board. In practical terms, there is no way that I can see of the Egg Marketing Board being able to institute policies that are in any way at variance with the interests of the producers in the Lower Mainland. If no change in basis of representation is made – and it is difficult to justify a change as the pattern of production now exists then if would appear that some sort of review procedure or some referee on Board policy matters must be established at Government level to ensure that minority groups within the Board’s jurisdiction have available to them a Court of Appeal from Board Orders and Board Regulations. I feel that the absence of such a provision is the major reason why this present informal survey was necessary and that to prevent a continuance of this situation, some established procedure must be available to those groups who feel that their interests have been and are being prejudiced by Board policies and regulations. This problem is further complicated by the fact that the egg producers throughout the Province no longer have one common organization or association where they can meet together and endeavour to resolve their problems. They are now split into three separate areas, as far as their egg producer associations are concerned, each area is interested and concerned with promoting the welfare of the producers in that area and they lack a common forum for resolving policy matters prior to them becoming major issues.

            In any approach to restricting the Board, consideration should be given to including representatives from the allied trades, possibly non-voting capacity. I realize that this will not sit well with many producers but I believe these people have a real stake in the industry and have experience and professional knowledge to contribute. The taboo against non-producers being on marketing boards is not peculiar to the egg to industry and stems from the belief that all of the elements other than the producer. I think it is time recognize that this belief has little basis in fact. They, like the producer, have no alternative but to operate as best they could in the system as it then existed. The concern now should be that all policy decisions are made with the fullest possible knowledge of the facts and for this to come about people who have this knowledge must be included in the discussions and be free to make their contribution.

            It has been the general practice of Government after Marketing Boards have been established, to leave them to run their own affairs. On the whole, this has worked well. It is not a basic right of Marketing Boards; on the contrary, any delegation of power by Government to any Board no matter how elected or constituted carries with it any obligation by government to make sure that the delegated powers are not being abused. I gained the impression that the Egg Board does not wholly recognize this fact. If there is to be any degree of peace in the egg industry, some form of scrutiny at department level is going to be necessary for some time to come.

            Dealing briefly with the other points in the terms of reference, Point No.1 dealing with Board determinations regarding quality, grade and class of the regulated product to be processed, packed, stored or marketed, produced virtually no comment which would appear to indicate that there is no quarrel with the policies of the Board in this respect.

            Points No.5 and 6 refer to charges made for Board services, license fees and classifications for license fees. Again these points produced very little comment at the public hearings. The basic charge of one third of one cent per dozen is certainly adequate for the Board’s operation; the license of $1.00 for each of the various classifications is nominal and would barely cover the book work. The Board has accumulated a substantial surplus over its period of operation and there does not appear to be any reason for it to continue to build this up.

            Point No.7 has to do with minimum prices as set by the Board. These are not, in fact, minimum prices to the producer but serve rather to establish a basis from which the selling price to the trade is determined. For the great majority of the producers in the Lower Mainland who ship through Grading Stations, their actual price is the minimum price as set by the Board less the deductions to cover Quote Pool costs for the period concerned. If, during this particular period they also ship eggs to the Excess Pool, this will reduce their actual quota sales for the same amount as those levied by the Quota Pool through the Grading Station.

            This brings us to Point No.8 which deals directly with pooling arrangements for the proceeds of the sale of eggs. The pooling arrangements cover the Excess Pool which takes care of surplus eggs over quota and the Quota Pool which takes care of Quota eggs (at whatever percentage of quota is currently in force) that are unsold at the end of the weekly pool period. These pools operate only in the Lower Mainland and appear very well designed to serve the needs of that area. The establishment of this pooling system for the Lower Mainland and area must be rated as one of the major accomplishments of the Board. To attempt to apply it to all areas of the province is another matter. With 80% of the production within the pooling system, it would seem very debatable that it is justified in trying to bring the other 20% into it at the present time. Continuation of the differential service charge on a reasonable basis would appear to be a more practical approach. With no facilities available outside of the Fraser Valley to dispose of the eggs over quote, these surplus eggs will have to be sold; the only alternative is to dump them. Certainly the Interior and Island producers must recognize that they cannot exempt the market any amount of eggs they can produce by merely paying the basic charge of one third of one cent per dozen. A graduated differential service charge together with an arrangement which would allow these producers to gradually qualify for extra quota would appear to be a better solution. Certainly the Survey Group does not pretend to have a complete answer to this problem. As has already been noted, the charges by the Fraser Valley Egg & Poultry Co-op acting as the pooling agency for the Board for both Excess and Quota pools, have resulted in very substantial earnings to the Co-op and con only be termed excessive. If these charges were being rebated back to all producers in the pool, this would be of no great concern, but since they are going only to the Co-op members they should be reduced to cost pending changes being made to bring the pooling Agency directly under the Board.

            Point No. 9, the only remaining point which has not been covered dealt with the use of moneys received by the Board in carrying out the purpose of the Scheme and in paying the expenses of the Board. This produced virtually no comment at the public hearings and since each registered producer receives a copy of the annual financial statement of the Board, the Survey Group made only a limited enquiry in this area. Board members, or at least the Board members in the Fraser Valley, are most directly involved in administrative matters than I would have expected and this is reflected in the details of their per diem and expenses which were examined. All of the accounts appeared in order ad salaries paid were in line with the responsibility carried.

            In summary, and to put things in perspective, it is generally agreed that the Board has done a very creditable job in stabilizing egg marketing in British Columbia and has put money in the pockets of the producers. The value of orderly marketing based on a quota system has been demonstrated and the evidence presented at the hearings generally confirms this. Unfortunately, the policies of the Board in certain areas have aroused such fierce antagonism and hostility as to jeopardize the continued existence of the Board unless resolved. It is of paramount importance to resolve these problems, and I am confident that it can be done. The job of the Survey Group was primarily to identify the major causes of the controversy surrounding the Egg Marketing Board and this, I feel, has been accomplished. To recommend definitive answers ready to put into operation would have required more time and money than was allotted for the Survey.

            Some of these matters, and particularly the problems affecting the allied groups, could well be the subject of further study with a view to bringing about a compromise between the contending factions. It may require some degree of intervention by the government to ahcive the necessary changes. If this is so, there should be no hesitation by the government to act; the continuation of a program of orderly marketing in the egg industry justifies it.