economic and cost analysis of the bc poultry -...

Economic and Cost Analysis of the BC Mainstream Chicken Broiler Industry

November 2016

PricewaterhouseCoopers LLP

Table of Contents

Economic and Cost Analysis of the BC Mainstream Chicken Broiler Industry2

November 2016

Page

Purpose and Scope of Work 3

Part 1: Analysis of BC Farm Returns 5

Part 2: Analysis of Processor Competitiveness 23

Appendices

A. Definition of an Average Farm 31

B. FCR and Incremental Margin 32

C. Serecon Linkage Model and Average Farm Capital Cost 34

D. Benefits from Production Growth and FCR 39

E. Supporting Calculations for Adjustment per Kilogram 40

F. Quota Values 41

G. BC Average Farmer Income 42

PricewaterhouseCoopers LLPEconomic and Cost Analysis of the BC Mainstream Chicken Broiler Industry

3November 2016

Purpose and Scope of Work


Purpose and Scope of Work


November 2016

• PricewaterhouseCoopers LLP (“PwC”) has been engaged by the Primary Poultry Processors Association of British Columbia (“PPPABC”) to conduct an economic and cost analysis of the BC mainstream chicken broiler industry.

• The objectives of the analysis are to assess:

- costs and returns in the broiler industry; and

- the competitiveness of the poultry processing sector.

• The results of the analysis will support the PPPABC’s submission to the BC Chicken Marketing Board regarding its Live Bird Pricing Review.

• Our work has been overseen by a Steering Committee of the PPPABC representing the majority of its members and the sector’s processed production.

• The analysis is based on information gathered from several third party sources. Our work did not constitute an audit conducted in accordance with generally accepted auditing standards, an examination of internal controls, nor attestation nor review services in accordance with the standards established by the Chartered Professional Accountants of Canada. Accordingly, we do not express an opinion nor any other form of assurance on the financial or other information.


Part 1 : Analysis of BC Farm Returns


November 2016


Approach to the Analysis of BC Farm Returns

The main approach has been to assess historical grower returns through:

• Live Price data that is formula based approximately: 2/3 the Ontario price, 1/3 the weighted average of the Alberta, Saskatchewan, and Manitoba price, plus a differential.

• Regularly published Serecon Linkage Model data for the BC broiler industry which supports chick pricing parity through a Linkage Agreement between hatcheries and growers. The Serecon Linkage Model is based on survey data that is regularly updated for certain costs such as feed and chick costs and periodically for other operating and capital costs. It also incorporates a return on capital as a revenue requirement in the cost calculation.

• Applying adjustments where applicable to determine performance figures reflective of representative costs and returns for the BC industry and the average farm. The profile of the average farm in BC is contained in Appendix A. It is based on average quota allocations for domestic production in the province.


November 2016


Historical grower performance from the Serecon Linkage Model suggests negative returns

• Historical Serecon Linkage Model summarizing costs by cycle suggests that growers have operated with negative recovery over the past 10 years.

• The first graph suggests that growers were only able to earn positive recoveries from late 2010 though 2011 and 2012.

• Higher recoveries in this period were a result of higher Live Prices largely driven by outdated conversion ratios used in Ontario Live Price formula and higher feed input cost.


November 2016

1.10

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1.90

2006 2007 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$/k

g

Live Price vs. Serecon Cost

Serecon Cost Live Price

80%

85%

90%

95%

100%

105%

110%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Annualized Serecon Cost Recovery Percentage(Calculated as: Live Price/Serecon Cost)

Target Cost Recovery % Serecon Cost Recovery %


Outdated feed conversion ratios in the Ontario formula, combined with record high feed prices, have generated artificially high live prices and excess profits

• To assess grower returns on a normalized basis, PwC revised FCR ratios used in the Ontario formula used to determine an adjusted Live Price. Ontario has applied the same FCR ratio of 2.0:1 since period A-52, when it is reasonable to assume that feed conversions have steadily improved over this period. Manual adjustments to the Live Price began in 2013 to account for these differences.

• In order to calculate an adjusted live price, PwC obtained the feed cost per tonne and feed component cost data for Ontario. We then calculated what feed component cost would be if gradual improvements were factored into the FCR by using the following formula:

Adjusted Feed Component Cost = Feed Cost Per Tonne/1000*Revised FCR

The difference between the Adjusted Feed Component cost and the Ontario Feed Component cost would represent incremental margin earned by growers from an outdated FCR in the Ontario Cost of Production Formula (“COPF”). Refer to Appendix B for supporting calculations.

• The graph demonstrates the difference in feed conversion ratios applied by PwC in order to normalize Live Prices for the outdated FCR ratio used in the Ontario COPF.

• It should be noted that the higher the feed costs increase, the higher the excess profits earned by growers due to the excess FCR.


November 2016

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A-1

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Ontario Model FCR vs. Estimated Ontario FCR

Estimated Ontario FCR Ontario Model FCR

Note: The step down in FCR from A-120 to A-128 is a result of an interim decision from the CFO


Grower performance based on adjusted FCR indicates more consistent returns

• Revision of the FCR resulted in a decrease to the overall Live Prices. Using the revised Live Prices, the Serecon cost recovery percentage was recalculated.

• Normalization of the Live Prices for the outdated feed conversion ratios shows that the Serecon Linkage Model calculates cost figures in excess of these revised Live Prices. This results in a consistent Serecon cost recovery of less than 100% over the past 10 years with the exception of 2011-2012 where higher feed prices resulted in a 100% recovery.

• The adjusted Serecon cost recovery line shows that growers’ current level of return is consistent with that of the 10-year historical recovery based on the methodology applied under the Serecon Linkage Model.

• It should be noted that the higher the feed cost increased, the higher the excess profits earned by growers due to the outdated FCR.


November 2016

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80

$1.90

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Per

Kg

Adjusted Live Price Based on Estimated FCR

Adjusted Live Price Live Price

80%

85%

90%

95%

100%

105%

110%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Annualized Serecon Cost Recovery Percentage(Calculated as: Live Price/Serecon Cost)

Average Adjusted Serecon Cost Recovery %

Adjusted Serecon Cost Recovery % (Live price adjusted for feed conversion)

Serecon Cost Recovery %


BC Grower profits from overstated FCR are estimated at $82 million over the past 10 years

• Using historical domestic production values produced by the Chicken Farmers of Canada, PwC calculated the incremental profits generated by growers during the 10-year period due to the outdated feed conversion ratios.

• Our results show that BC growers have generated $82M in incremental profits over the last 10 years, and the average farm would have received profits in excess of $237k over the same period. Details supporting these calculations are contained in Appendix B.


November 2016

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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BC Grower Incremental Profits from Outdated FCR

Cumulative Incremental Income from Outdated FCR

$0

$50

$100

$150

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$300

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Thousands

Average Farm - Incremental Profits from Outdated FCR


The Serecon Linkage Model includes areas that inflate grower production costs

11November 2016

Other areas that inflate grower or don’t fully reflect actual returns include:

1. The asset base to which return on capital is applied to

2. Costs related to market development

3. Efficient farm returns

These are assessed for the average farm and at an industry-wide level in the following slides.



The Serecon Linkage Model uses a higher asset base than that of an average farm

• For the average farm, we have assumed an average life of 40 years for the barn, in contrast to the 30 years used in the Serecon Linkage Model. The 40-year life is consistent with the Ontario Model Farm results. The longer life of the asset also has a two-fold effect. It results in lower depreciation and a lower return on asset calculation over the life of the barn.

• Based on input from the PPABC, barn costs and associated equipment are also typically lower than in the Serecon Linkage Model. For example, the average cost/sq ft from the construction of three new barns constructed in 2016, capital costs are $23/sq ft compared to $29.20/sq ft in the SereconLinkage Model.

• The difference in depreciation with these two adjustments is close to 4 cents per kg over the 40-year period and is included in a Capital Cost Adjustment calculation. Refer to Appendix E for supporting calculation for impact per kg.


November 2016

Summary of Assumption Differences

Average Farm Serecon

Land

Freqency of Revaluation N/A - Historical Every 5 years

Barn

Cost per Square Foot (2016) 23.00 29.20

Useful life 40 30

Associated Equipment

Cost per Square Foot (2016) 9.00 9.40

Useful life 20 12.5

Note: Serecon associated equipment of 12.5 years is the average of equipment with 10 and 15 years life.


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Thousands

Average Farm - Income from Land

Cumulative Income from Land (Indexed)

Cumulative Income from Land (Historical)

The return on land requirement in the Serecon Linkage Model is much higher compared to historical costs

• The Serecon Linkage Model assumes a rental rate on land

based on current market values. This approach may be

acceptable for a linkage model, but doesn’t reflect the fact

that the majority of growers have purchased land some time

ago. As a result, these rental rates may not reflect the growers

true cost of land.

• In addition it is contrary to the approach taken with the

Ontario model that is based on average values for all

provincial farm land reported by Statistics Canada which are

substantially lower.

• The chart compares the difference in return on land between

what an average farm that was built in 2001 in BC would

generate based on historical cost versus market value. It

results in an incremental $824k in income purely from

ownership of land over 40 years life – the estimated life of

the barn – more than three times our estimated original cost

of the land. Detailed calculations are contained in

Appendix C.

• The difference in investment cost from higher land values in

the Serecon Linkage model results in a difference of

approximately 3 cents per kg over the 40-year period and is

included in a Capital Cost Adjustment calculation. Refer to

Appendix E for supporting calculation for impact per kg.


November 2016

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Average Farm - Land Value

Indexed Land Value Average Farm Land Cost

Additional income from indexation


$1.172$0.832

$1.232

$0.408

$2.154

$1.166

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Capital Cost (40 Years)

Capital Assets Land Depreciation

Differences in the asset base for an average farm result in additional return on capital requirements of $2.1 million under the Serecon Linkage Model


November 2016

• The cumulative effect of the differences over 40 years when applied to the historical value of land and depreciated asset balance is $2.1 million as illustrated in the chart. Refer to Appendix C for supporting calculations.

Additional $2.1M return on capital caused by differences in cost base and depreciation assumptions

Serecon Average Farm


The Serecon Linkage Model also excludes revenues associated with market development costs

Additional revenue expected from the market development program have not been recognized in the Serecon Linkage Model. A 1 cent per kg reduction in COP has been applied to reflect this difference. This adjustment is based on the 1 cent per kg cost included within the Serecon Linkage Model for period A135. This is a conservative adjustment as historical MD Lease Costs have been well over 1 cent per kg (Refer to excerpt from A-135 Serecon Linkage Model below).

15November 2016Economic and Cost Analysis of the BC Mainstream Chicken Broiler Industry

$0.00

$0.01

$0.02

$0.03

$0.04

2008 2009 2010 2011 2012 2013 2014 2015 2016

Serecon Historical MD Lease Costs

Source: Serecon

Source: Serecon


Efficient Farm adjustments based on Quartile Performance are 2 cents per kg• The Serecon Linkage Model currently contains no adjustment to ensure results are reflective of an

efficient farm. A reasonable approach to estimate the impact of an efficient farm would be to determine the change in average COP of a province by removing the performance of less efficient growers. The Live Price in Ontario incorporates this concept based on a model farm which resulted in a 2.77 cent reduction in live price over four years.

• Following this concept based on BC feed producer data, we applied a 2 cent per kg COP reduction to estimate the results for an efficient farm. The specific adjustment is calculated as the difference between the FCR performance average of the bottom quartile and the average of the top three quartiles. The data source is a leading feed company in BC indicating FCR in 2015/2016.

• Other areas of potential efficiencies which we have not accounted for include lower operating costs from more energy-efficient barns and improved asset management and farming practices.


November 2016

Efficient Farm Adjustment Average Margin Margin Adjustment

(A) (B) (A) - (B)

$'s/kg Population Top 75

Percentile Bottom Quartile

Consolidated 0.46 0.48 0.02

December 0.47 0.49 0.02

March 0.44 0.46 0.02

April 0.44 0.46 0.02

May 0.46 0.47 0.02

June 0.44 0.46 0.02

July 0.47 0.48 0.02

September 0.49 0.51 0.02

October 0.48 0.50 0.02


Growth in domestic production of 16% over the past 11 years also has a financial impact

• Growth in mainstream domestic provincial allocation of domestic production over the past 10 years has increased. The adjustments previously described do not factor in the financial impact of this growth.

• Mainstream domestic provincial allocation of production has increased from 182M kg to 211M kg, an 16% increase. For the average farm this has resulted in an increase in production from 529k kg to 613k kg in 2015.

• While the Serecon Linkage Model accounts for this increase on a unit cost basis, the model’s construct doesn’t recognize any additional margin from this incremental production.


November 2016

165 kg

170 kg

175 kg

180 kg

185 kg

190 kg

195 kg

200 kg

205 kg

210 kg

215 kg

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Mill

ions

BC Growers - Historical Domestic Production

480 kg

500 kg

520 kg

540 kg

560 kg

580 kg

600 kg

620 kg

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Thousands

Average Farm - Historical Domestic Production


Incremental margin in domestic production on a cumulative basis over 10 years is estimated at $49 million


November 2016

• PwC has estimated the additional margin associated with growth in domestic production over the past 10 years.

• At an industry level, this has resulted in cumulative margin of $49 million. For the average farm this has resulted in cumulative margin of $143k.

• Calculations are contained in Appendix D.

$0

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BC Grower - Cumulative Margin from Production Growth

$0

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2008 2009 2010 2011 2012 2013 2014 2015 2016

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Average Farm - Cumulative Margin from Production Growth


The adjustments to COP and margins average 14 cents per kg over the past 10 years for an average farm


November 2016

Three types of adjustments to financial performance have been assessed over a 10-year period from 2006 to 2015 (Period A69 to A138). The results suggest the average farm has been better off by 14 cents per kg over the period. The average adjustments are summarized in the table below. While the FCR benefit from the Ontario COPF has been eliminated with a revised FCR, the results also suggest the Serecon Linkage Model is not an appropriate method to determine BC Live Bird prices. Refer to Appendix E for supporting calculations.

1. Adjustments to FCR in the Ontario COPF $

Adjusted FCR 0.04

2. Adjustments to the Serecon Linkage Model

Adjustment for higher depreciable asset base and shorter useful life 0.03

Adjustment for higher land costs 0.02

Removal of costs related to market development 0.01

Efficient farm adjustment 0.02

3. Production Volume Adjustment

Increased margin from the increased production volume 0.02

Total Average Adjustment per Kg $0.14


BC Quota values have increased substantially with industry expansion

• In addition to realizing stable returns, BC growers have benefited from growth in quota values and increased production.

• Quota values have risen substantially – from $20/bird in 1990 to over $100/bird in current quota values. The aggregate increase at an industry level is close to $1 billion over the last 10 years.

• BC quota values are comparable to other provinces is another strong indicator that BC growers continue to remain comparable to the rest of Canada.

• Refer to Appendix F for additional details on quota values.


November 2016

20

40

60

80

100

120

1990 2000 2005 2010 2012 2014 2016

$/1

.929kg

BC Quota Value per Bird (1.929kg)

-

20

40

60

80

100

120

140

BC AL SK MA ON$/1

.929kg

2016 Quota Values

Benefits from Quota Value Growth and Production Growth

Year ($'s unless otherwise stated) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Actual Domestic Production (Kg) 181,704,365 184,363,079 185,879,953 182,786,696 188,930,455 187,444,647 192,430,849 192,912,078 198,925,786 201,626,192 210,699,371

Specified Weight Per Quota Unit 1.929 1.929 1.929 1.929 1.929 1.929 1.929 1.929 1.929 1.929 1.929

Average Cycles Per Year 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5

Calculated Quota Units Available 14,491,715 14,703,759 14,824,736 14,578,035 15,068,027 14,949,527 15,347,199 15,385,579 15,865,198 16,080,567 16,804,193

Unit Change from Base Year (2006) - 212,044 333,021 86,321 576,312 457,812 855,484 893,864 1,373,483 1,588,852 2,312,478

Quota Values 58 N/A N/A N/A 61 79 91 105 100 101 105

BC Grower Quota Value 833,273,596 - - - 924,172,315 1,181,012,650 1,393,167,527 1,615,485,759 1,586,519,807 1,619,688,332 1,765,840,587

Incremental Benefits from Quota Value Growth - - - - $90,898,719 $347,739,054 $559,893,931 $782,212,163 $753,246,211 $786,414,735 $932,566,991


BC poultry and egg farms have consistently reported higher net income than provincial farm averages

21November 2016

Statistics Canada Results

BC poultry and egg production is reported on a combined basis only. Average farm income data (Appendix G) over an 11-year period was obtained from Statistics Canada suggests BC poultry and egg farmers are performing better than most other farm types. Moreover:

• BC poultry and egg farmers have consistently reported positive net income that is significantly higher than results generated under the Serecon Linkage Model for poultry production.

• The decrease in net income earned in 2013 from 2011/2012 levels are a result of FCR issues within the Ontario Live Price formula. 2013 average net income reported is still above the 11-year average of $152k.

Statistics Canada vs. Serecon Results

To further assess the validity of the Serecon Linkage Model, PwC performed a comparison between reported Statistics Canada results and implied net income under the Serecon Linkage Model. PwC calculated net income of an average-sized farm under the Serecon Linkage Model by multiplying the average farm’s annual production by net income per kg. With this comparison we note a significant deviation from net income data reported by Statistics Canada. It further suggests that the application of the Serecon Linkage Model does not reflect the true financial performance of the industry and should not be used be used for establishing Live Bird prices, Refer to Appendix G for calculations.


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Statistics Canada vs. Serecon Linkage Model

Average Poultry and Egg Farm Income Serecon Net Income


Conclusions

• The PwC analysis suggests that after taking into consideration the results of certain cost and return adjustments applied over a period of time, BC chicken farms have earned consistent returns over the past five years that are in line with normalized historical performance.

• This strong financial performance is supported by strong quota values and financial results reported by Statistics Canada.

• The Serecon Linkage Model, which supports chick pricing parity through a Linkage Agreement between hatcheries and growers, may not be representative of true financial performance as it does not factor in cost adjustments and increased margins from higher production volumes that most poultry farms in BC benefit from. It includes a rental rate for land based on the current market values which, if it were to be applied in establishing Live Bird prices, places the onus on processors to pay for increases in land values. For these reasons, the Serecon Linkage Model does not appear appropriate for establishing Live Bird prices in BC.


November 2016


Part 2: Analysis of Processor Competitiveness


November 2016


Approach to the Analysis of Processor Competitiveness

• The main approach to the analysis is to compare key competitiveness factors with other provinces, and in particular with the cost structure and efficiencies of scale compared to Ontario, including those related to:

1. Live price/Base price comparison

2. Wage rates

3. Tariff rate quota


November 2016


Live Price/Base Price comparisons indicate the BC industry has the highest input costs


• BC processors have consistently been challenged with higher live prices compared to other provinces such as Ontario.

• The BC industry has the highest Live Prices in Western Canada that are well above the Live Prices in Ontario and Quebec.

• BC price premiums compared to Ontario have been increasing at a steady state from 4.2. cents in 2000 to 7.9 cents in 2015.

25November 2016

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(Cents

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BC Live Price Premium Compared to Western Provinces

AB SK MA

Source: Chicken Farmers of Canada Note: A two cent reduction was applied to Ontario live prices to ensure prices are based on the same size birds and are comparable to BC

Source: Chicken Farmers of Canada

Live Price Comparison Across Canada

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

BC 115.6 120.9 116.2 122.5 124.4 122.5 117.4 131.1 147.9 150.8 145.2 165.5 171.7 174.9 167.0 162.4

AB 112.5 118.3 114.0 119.7 122.1 119.7 114.6 128.0 145.3 148.2 142.6 163.1 169.3 172.5 164.6 160.1

SK 112.0 117.9 113.5 119.2 122.0 119.4 114.6 128.0 144.5 147.2 142.0 162.4 168.5 171.7 163.8 159.9

MB 111.4 117.4 113.0 118.7 121.4 118.4 113.6 127.0 143.5 146.6 140.9 161.3 167.6 171.0 163.0 160.8

ON 111.4 116.7 111.7 117.7 119.2 116.2 111.1 124.5 141.0 143.1 137.4 157.8 164.1 167.3 159.2 154.5

QB 113.4 118.7 113.7 119.7 121.2 118.2 113.1 126.5 143.0 145.0 139.4 159.8 166.1 169.3 161.2 156.2

NB 119.7 125.1 119.1 126.0 129.1 124.8 119.7 132.8 149.5 151.5 145.9 166.3 172.6 175.8 167.7 164.5

NS 117.7 123.0 118.7 124.1 128.5 122.7 118.9 132.2 147.5 151.8 145.9 166.3 172.4 175.6 167.7 164.5

Weighted Average 113.8 119.3 114.4 120.4 122.2 119.4 114.4 127.8 144.4 146.8 141.1 161.6 167.8 171.0 163.0 157.8

BC price premium

compared to ON 4.2 4.2 4.5 4.8 5.2 6.3 6.3 6.6 6.9 7.7 7.8 7.7 7.6 7.6 7.8 7.9


Higher wage rates in BC are also prevalent

26November 2016

• Data on wage rates and benefits was collected from major poultry processors with operations in Western Canada and Ontario. These are summarized in the table.

• The BC industry has the highest base rate, other payroll costs and benefit costs. The latter is influenced by employer-funded provincial health premiums which operators in other provinces don’t bear.

• In the table, the total wage costs are also shown as labour cost per live kg. It suggests the BC industry has labour costs that are $0.08 per kg higher than in Ontario.

Note: The 45 cent proxy cost per live kg represents the estimated labour cost on a live kg basis for a BC plant performing a balanced variety of services including bulk sales, boning cut-up and tray pack. Plants with less intensive services (i.e. more bulk sales) would incur less labour cost per kg, while plants performing a higher volume of labour intensive activities (boning and tray pack) will incur higher costs per kg.


COMPARATIVE FACTORSLilydale

POCO

Colonial

FarmsSunrise

Maple

Leaf

Edmonton

SofinaPrairie

Pride

Sofina

Winyard

Sunrise:

Dunn-RiteGranny's

Maple

Lodge

Maple

Leaf

Brampton

Pinty's

Delicious

Maple

Leaf

Toronto

Cargill

Meats

Maple

Leaf - St.

Marys

Plant Base Rate - $ $20.99 $21.10 $21.29 $20.27 $19.68 $14.85 $18.27 $18.13 $17.11 $18.62 $19.46 $18.18 $19.17 $20.30 $19.94

Rate (Av.46 Hrs) - $ $23.73 $23.85 $24.07 $21.59 $20.96 $15.82 $19.46 $19.31 $18.23 $19.83 $20.73 $19.37 $20.42 $21.62 $21.24

Average Before Payroll and Benefits Costs

Payroll Costs (18.5%)

Benefit Costs (2010 Figures)

Total Wage Cost

Proxy: Cost per Live Kg

Disadvantage to Ontario

BASE LABOUR RATE COMPARISON WITH BENEFITS 2016

MBSKABBC ON

1.00

$23.26

0.34

-$0.04 $0.00

0.37

$26.00

1.65

-$0.05

0.32

$22.43

1.51

3.28

$20.54$18.77$17.64$21.28

3.95 3.49 3.82

$0.03$0.08

0.45

$31.22

2.90

4.44

$23.88

2.61

$27.84

0.40


The Tariff Rate Quota (TRQ) allocation to BC represents an additional disadvantage

• Ontario and Quebec receive a disproportionate allocation of TRQ relative to BC and other western provinces.

• The greater allocation provides processors in these provinces with more production and greater economies of scale.

• This translates to a $0.10 advantage that Ontario enjoys over BC processors.


November 2016

Sources: TRQ Allocation and Distributor TRQ - CFC Chicken Tariff Rate Quota Presentation (April 24, 2012), TRQ Value per Kg – PPPABC: Estimate based on current market conditionsNote: The ending calculation excludes TRQ component related to distributor and retailers

TRQ Benefits

TRQ Allocation

(Kg)

Distributor

Retailer TRQ

Net Processor

TRQ

TRQ Value per

KgTRQ Value Domestic Kg

TRQ Value/

(Domestic +

TRQ Kg)

Disadvantage

compared to

ON

BC 4,600,000 -638,268 3,961,732 1.50 5,942,597 142,222,665 0.040 0.099

AB 1,700,000 -235,882 1,464,118 1.50 2,196,177 96,474,884 0.022 0.117

SK 100,000 -13,875 86,125 1.50 129,187 35,875,019 0.004 0.136

MB 1,300,000 -180,380 1,119,620 1.50 1,679,430 41,830,130 0.039 0.101

ON 40,800,000 -5,661,163 35,138,837 1.50 52,708,255 337,151,132 0.139 0.000

QB 26,900,000 -3,732,483 23,167,517 1.50 34,751,276 270,260,622 0.117 0.023

MR 1,300,000 -180,380 1,119,620 1.50 1,679,430 80,812,540 0.020 0.119

Total 76,700,000 -10,642,432 66,057,568 99,086,352 1,004,626,992


Processor cost disadvantages relative to Ontario in 2015 are estimated at $44 million

• BC processors face cost advantages relative to Ontario relating to Catching Costs and Live Hauling Costs. These are netted against the impact of the three cost disadvantages described.

• These combined disadvantages faced by BC processors results in a 22 cent per kg difference when compared to Ontario. The table below provides a summary of the disadvantages described. This does not include scale advantages achieved by the large Ontario plants which process much larger volumes than BC plants.

• The BC industry also faces a cost disadvantage relative to the other Western provinces.

• Extrapolating this 22 cent per kg disadvantage based on 2015 production results in a $44 million disadvantage to BC processors.

28November 2016Economic and Cost Analysis of the BC Mainstream Chicken Broiler Industry

Summary of Disadvantages - A140

BC AB SK MB ON

Base Live Price 1.592 1.570 1.563 1.563 1.498

Base Live Price Differential 0.094 0.072 0.065 0.065 0.000

Other Costs

Catching Cost (0.048) (0.048) (0.048) (0.048) -

Transport/Catching System Investment 0.010 0.010 0.010 0.010

Labour 0.075 0.027 (0.052) (0.040) -

TRQ 0.099 0.117 0.136 0.101 -

Livehauling costs (0.010) 0.035 0.015 0.000 -

Total Disadvantage to Ontario $0.220 $0.212 $0.126 $0.088 -


Conclusions

• The BC chicken processing industry faces a higher cost structure than other provinces and in particular Ontario, due to higher chicken input costs, higher processing labour, less available TRQ, and lower economies of scale.

• This high cost structure results in BC processors accepting lower margins when competing with processors in other provinces.

• The analysis stresses the importance of maintaining reasonable chicken input costs as other factors are less controllable.


November 2016


Appendices


November 2016


Appendix A: Definition of an Average Farm


November 2016

Average Farm Key Assumptions Unit Source

Mainstream Domestic Production 201,626,192 Kg BC Chicken Marketing Board

Total Annual Production 217,663,316 Kg BC Chicken Marketing Board

Domestic Production Percentage of Annual production 93% % Calculated as: Mainstream Domestic Production / Total Annual Production

Average farm Kg Production per Annum 662,000 Kg Chicken Farmers of Canada

Average Farm Domestic Kg Production per Annum 613,225 Kg Calculated as: Average Farm Kg Production per Annum x Domestic Production Percentage of Annual Production

Average Weight per Bird 1.929 Kg BC Chicken Marketing Board

Birds Produced per Year 317,898 # Calculated as: Average Farm Domestic Kg Production per Annum / Average Weight per Bird

Average Number of Cycles per Annum 6.5 # BC Chicken Marketing Board

Birds Produced per Cycle 48,907 # Calculated as: Birds Produced per Year / Average Number of Cycles per Annum

Average Barn Size 34,000 Ft2 Primary Poultry Processors Association of BC

Production Increase per Annum for Forecast Period 1.2% % Calculated as: 2006 to 2015 average annual production growth based on CFC historical production figures

Production Increase for 2016 4.5% % Primary Poultry Processosrs Association of BC - Estimate based on a 5.1% growth as of Sept 2016

Density 2.77 Kg/Ft2 Calculated as: Birds Produced per Cycle x Average Weight per Bird / Average Barn Size

Initial Investment Date 1-Jan-01 Date Primary Poultry Processors Association of BC

Land

Land cost per Acre (2001) 43,129 $/Acre

Calculated by deflating Land Cost per Acre in 2016 to 2001 using percentage change in Farm Land and Building

prices changes pub lished by Statistics Canada. Land Cost per Acre in 2016 is calculated as: Serecon A135 Required

Return per Kg x Annual Production / WACC / Acres per Average Farm = 0.0507 x 613225 / 4.72% / 5

Acres 5 Acre Primary Poultry Processors Association of BC

Frequency of Revaluation N/A - Historical - Primary Poultry Processors Association of BC

Barn

Cost per Square Foot (2016) 23.00 $/Ft2 Primary Poultry Processors Association of BC

Useful Life 40 Yrs. Chicken Farmers of Ontario


Cost per Square Foot (2016) 9.00 $/Ft2 Primary Poultry Processors Association of BC

Useful Life 20.0 $/Ft2 Primary Poultry Processors Association of BC

Capital Structure Assumptions Source

Equity % 40% CFO

Debt % 60% CFO

After tax equity rate 6.65% Serecon

Debt rate 4.65% Serecon

Tax rate 26% CRA

WACC 4.72% Calculated

Serecon Key Assumption Differences Unit Source

Land

Frequency of Revaluation Every 5 years - Serecon

Barn

Cost per Square Foot (2016) 29.20 $/Ft2 Serecon

Useful Life 30 Yrs. Serecon


Cost per Square Foot (2016) 9.40 $/Ft2 Serecon

Useful Life 12.5 Yrs. Calculated as the average life between a mix of equipment's with 10 and 15 year life.


Appendix B: FCR and Incremental Margin


November 2016

Feed Conversion Ratio Adjustment

(A) (B) (C) (D) (E) (F) = (B) x (D) (G) - (E) - (F)

Period Ontario

Model FCR

Estimated

Ontario FCR

Feed Price

$/tonne

Ontario Price

per Kg of

Feed

Ontario Feed

Component

$/Kg of Live

Weight

Estimated Feed

Component Cost

(Adjusted for

FCR)

Difference in Feed

Cost

A-96 2.000 1.89 314.70 0.31 0.64372 0.59503 (0.0487)

A-97 2.000 1.89 301.11 0.30 0.61653 0.56933 (0.0472)

A-98 2.000 1.89 289.92 0.29 0.59416 0.54818 (0.0460)

A-99 2.000 1.89 292.26 0.29 0.59884 0.55261 (0.0462)

A-100 2.000 1.89 296.29 0.30 0.60690 0.56023 (0.0467)

A-101 2.000 1.89 305.03 0.31 0.62438 0.57675 (0.0476)

A-102 2.000 1.88 329.09 0.33 0.67250 0.61711 (0.0554)

A-103 2.000 1.88 352.88 0.35 0.72008 0.66172 (0.0584)

A-104 2.000 1.88 372.03 0.37 0.75838 0.69763 (0.0607)

A-105 2.000 1.88 389.86 0.39 0.79404 0.73107 (0.0630)

A-106 2.000 1.88 412.76 0.41 0.83984 0.77401 (0.0658)

A-107 2.000 1.88 412.37 0.41 0.83906 0.77328 (0.0658)

A-108 2.000 1.88 388.58 0.39 0.79148 0.72867 (0.0628)

A-109 2.000 1.86 368.79 0.37 0.75190 0.68580 (0.0661)

A-110 2.000 1.86 375.33 0.38 0.76498 0.69796 (0.0670)

A-111 2.000 1.86 389.10 0.39 0.79252 0.72357 (0.0689)

A-112 2.000 1.86 395.74 0.40 0.80580 0.73592 (0.0699)

A-113 2.000 1.86 446.78 0.45 0.90788 0.83083 (0.0770)

A-114 2.000 1.86 472.51 0.47 0.95934 0.87868 (0.0807)

A-115 2.000 1.86 437.08 0.44 0.88848 0.81279 (0.0757)

A-116 2.000 1.84 428.55 0.43 0.87142 0.79024 (0.0812)

A-117 2.000 1.84 425.40 0.43 0.86513 0.78444 (0.0807)

A-118 2.000 1.84 415.72 0.42 0.84576 0.76659 (0.0792)

A-119 2.000 1.84 427.90 0.43 0.87011 0.78904 (0.0811)

A-120 1.930 1.84 411.76 0.41 0.79073 0.75929 (0.0314)

A-121 1.930 1.84 388.38 0.39 0.75048 0.71616 (0.0343)

A-122 1.930 1.83 376.40 0.38 0.72987 0.68821 (0.0417)

A-123 1.930 1.83 387.89 0.39 0.74963 0.70921 (0.0404)

A-124 1.930 1.83 410.01 0.41 0.78771 0.74965 (0.0381)

A-125 1.930 1.83 418.52 0.42 0.80236 0.76522 (0.0371)

A-126 1.930 1.83 388.06 0.39 0.74994 0.70953 (0.0404)

A-127 1.930 1.83 401.33 0.40 0.77277 0.73379 (0.0390)

A-128 1.930 1.83 379.08 0.38 0.73447 0.69310 (0.0414)

A-129 1.813 1.813 407.22 0.41 0.73829 0.73829 0.0000

A-130 1.813 1.813 404.99 0.40 0.73425 0.73425 0.0000

A-131 1.813 1.813 395.79 0.40 0.71756 0.71756 0.0000

A-132 1.813 1.813 383.83 0.38 0.69589 0.69589 0.0000

A-133 1.813 1.813 400.97 0.40 0.72695 0.72695 0.0000

A-134 1.813 1.813 399.31 0.40 0.72395 0.72395 0.0000

A-135 1.813 1.813 383.47 0.38 0.69523 0.69523 0.0000

A-136 1.813 1.813 385.39 0.39 0.69872 0.69872 0.0000

A-137 1.813 1.813 373.62 0.37 0.67737 0.67737 0.0000

A-138 1.813 1.813 392.23 0.39 0.71112 0.71112 0.0000

A-139 1.813 1.813 402.19 0.40 0.72917 0.72917 0.0000

Feed Conversion Ratio Adjustment

(A) (B) (C) (D) (E) (F) = (B) x (D) (G) - (E) - (F)

Period Ontario

Model FCR

Estimated

Ontario FCR

Feed Price

$/tonne

Ontario Price

per Kg of

Feed

Ontario Feed

Component

$/Kg of Live

Weight

Estimated Feed

Component Cost

(Adjusted for

FCR)

Difference in Feed

Cost

A-52 2.000 2.00 262.11 0.26 0.53855 0.52423 (0.0143)

A-53 2.000 2.00 262.11 0.26 0.53855 0.52423 (0.0143)

A-54 2.000 2.00 259.69 0.26 0.53371 0.51939 (0.0143)

A-55 2.000 2.00 259.69 0.26 0.53371 0.51939 (0.0143)

A-56 2.000 2.00 258.68 0.26 0.53168 0.51736 (0.0143)

A-57 2.000 1.98 258.68 0.26 0.53168 0.51332 (0.0184)

A-58 2.000 1.98 246.78 0.25 0.50787 0.48970 (0.0182)

A-59 2.000 1.98 246.78 0.25 0.50787 0.48970 (0.0182)

A-60 2.000 1.98 253.09 0.25 0.52050 0.50224 (0.0183)

A-61 2.000 1.98 253.09 0.25 0.52050 0.50224 (0.0183)

A-62 2.000 1.98 280.84 0.28 0.57600 0.55730 (0.0187)

A-63 2.000 1.97 280.84 0.28 0.57600 0.55292 (0.0231)

A-64 2.000 1.97 271.23 0.27 0.55679 0.53400 (0.0228)

A-65 2.000 1.97 271.23 0.27 0.55679 0.53400 (0.0228)

A-66 2.000 1.97 217.40 0.22 0.44912 0.42802 (0.0211)

A-67 2.000 1.97 217.40 0.22 0.44912 0.42802 (0.0211)

A-68 2.000 1.97 210.02 0.21 0.43435 0.41348 (0.0209)

A-69 2.000 1.97 210.02 0.21 0.43435 0.41348 (0.0209)

A-70 2.000 1.95 217.41 0.22 0.44913 0.42464 (0.0245)

A-71 2.000 1.95 222.58 0.22 0.45949 0.43475 (0.0247)

A-72 2.000 1.95 217.31 0.22 0.44893 0.42444 (0.0245)

A-73 2.000 1.95 209.46 0.21 0.43324 0.40912 (0.0241)

A-74 2.000 1.95 204.66 0.20 0.42364 0.39974 (0.0239)

A-75 2.000 1.95 203.97 0.20 0.42226 0.39839 (0.0239)

A-76 2.000 1.94 240.83 0.24 0.49598 0.46663 (0.0293)

A-77 2.000 1.94 259.61 0.26 0.53354 0.50302 (0.0305)

A-78 2.000 1.94 273.19 0.27 0.56071 0.52934 (0.0314)

A-79 2.000 1.94 262.55 0.26 0.53942 0.50872 (0.0307)

A-80 2.000 1.94 265.82 0.27 0.54596 0.51505 (0.0309)

A-81 2.000 1.94 264.80 0.26 0.54391 0.51307 (0.0308)

A-82 2.000 1.94 273.11 0.27 0.56054 0.52918 (0.0314)

A-83 2.000 1.92 281.88 0.28 0.57808 0.54177 (0.0363)

A-84 2.000 1.92 311.15 0.31 0.63662 0.59803 (0.0386)

A-85 2.000 1.92 333.02 0.33 0.68036 0.64006 (0.0403)

A-86 2.000 1.92 351.04 0.35 0.71640 0.67470 (0.0417)

A-87 2.000 1.92 379.36 0.38 0.77304 0.72913 (0.0439)

A-88 2.000 1.92 363.53 0.36 0.74138 0.69870 (0.0427)

A-89 2.000 1.91 317.95 0.32 0.65022 0.60614 (0.0441)

A-90 2.000 1.91 329.56 0.33 0.67344 0.62827 (0.0452)

A-91 2.000 1.91 327.58 0.33 0.66948 0.62450 (0.0450)

A-92 2.000 1.91 335.13 0.34 0.68458 0.63889 (0.0457)

A-93 2.000 1.91 353.16 0.35 0.72064 0.67326 (0.0474)

A-94 2.000 1.91 326.21 0.33 0.66675 0.62189 (0.0449)

A-95 2.000 1.91 317.08 0.32 0.64848 0.60448 (0.0440)

Source: Ontario Model FCR, Feed Price per Tonne, and Ontario Feed Component per Kg of Live Weight (Association of Ontario Chicken Processors)


Appendix B: FCR and Incremental Margin (Continued)


November 2016

Source: BC annual domestic production (British Columbia Chicken Marketing Board). Percentage change in BC annual domestic production is applied to Average farm production in 2016 to calculate historical production levels.

Benefits from Outdated FCR 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Adjustment per Kg for Outdated FCR $0.02 $0.03 $0.04 $0.04 $0.05 $0.06 $0.07 $0.07 $0.04 $0.01 $0.00

BC Growers

Percentage Change in Production 1.2% 1.5% 0.8% -1.7% 3.4% -0.8% 2.7% 0.3% 3.1% 1.4% 4.5%

Actual Mainstream Domestic Production in BC 181,704,365 184,363,079 185,879,953 182,786,696 188,930,455 187,444,647 192,430,849 192,912,078 198,925,786 201,626,192 210,699,371

BC Annual Production Increase from 2006 - 2,658,714 4,175,588 1,082,331 7,226,090 5,740,282 10,726,484 11,207,713 17,221,421 19,921,827 28,995,006

Incremental Profit from FCR Adjustment

Incremental Profit from Feed Conversion 4,318,952 5,466,462 7,192,477 8,220,735 8,778,135 11,158,827 13,538,035 13,800,518 7,700,490 1,390,178 -

Cumulative Incremental Profit from Outdated FCR $4,318,952 $9,785,414 $16,977,892 $25,198,627 $33,976,762 $45,135,589 $58,673,624 $72,474,141 $80,174,631 $81,564,809 $81,564,809

Average Farm 1.2% 1.5% 0.8% -1.7% 3.4% -0.8% 2.7% 0.3% 3.1% 1.4% 4.5%

Annual Production for an Average Farm 528,837 536,575 540,990 531,987 549,868 545,544 560,056 561,456 578,959 586,818 613,225

Average Farm Production Increase from 2006 - 7,738 12,153 3,150 21,031 16,707 31,219 32,619 50,122 57,981 84,388

Incremental Profit from FCR Adjustment

Incremental Profit from Feed Conversion 12,570 15,910 20,933 23,926 25,548 32,477 39,401 40,165 22,412 4,046 -

Cumulative Incremental Profit from Outdated FCR $12,570 $28,480 $49,413 $73,339 $98,887 $131,364 $170,765 $210,931 $233,342 $237,388 $237,388


Appendix C: Serecon Linkage Model and Average Farm Capital Cost


November 2016

Serecon Model 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Barn

Opening Balance 755,283 730,107 704,931 679,755 654,579 629,403 604,227 579,051 553,875 528,698Depreciation 25,176 25,176 25,176 25,176 25,176 25,176 25,176 25,176 25,176 25,176Closing Balance 730,107 704,931 679,755 654,579 629,403 604,227 579,051 553,875 528,698 503,522

Associated EquipmentOpening Balance 243,139 223,688 204,237 184,786 165,335 145,884 126,432 106,981 87,530 68,079Depreciation 19,451 19,451 19,451 19,451 19,451 19,451 19,451 19,451 19,451 19,451Closing Balance 223,688 204,237 184,786 165,335 145,884 126,432 106,981 87,530 68,079 48,628

Value of Barn and Equipment 976,109 931,482 886,855 842,227 797,600 752,973 708,346 663,718 619,091 574,464Value of Land 215,643 215,643 215,643 215,643 215,643 353,964 353,964 353,964 353,964 353,964Average Asset Balance (Including land) $1,191,752 $1,147,125 $1,102,497 $1,057,870 $1,013,243 $1,106,937 $1,062,309 $1,017,682 $973,055 $928,428

Average Asset Balance per Kg 2.4 2.3 2.2 2.0 1.9 2.1 2.0 1.9 1.8 1.7

Production% Change in Annual Production 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.5% 0.8% -1.7% 3.4%Annual Production (kg) 498,218 504,196 510,247 516,370 522,566 528,837 536,575 540,990 531,987 549,868

Depreciation SummaryAnnual Depreciation $44,627 $44,627 $44,627 $44,627 $44,627 $44,627 $44,627 $44,627 $44,627 $44,627Barn Depreciation per Kg $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05Associated Equipment Depreciation per Kg $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04Depreciation per Kg $0.09 $0.09 $0.09 $0.09 $0.09 $0.08 $0.08 $0.08 $0.08 $0.08

Required Return on Capital AssetsWeighted Average Cost of Capital (WACC) 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72%

Annual Required Return on Barn, Capital Equipment and Vehicles $46,117 $44,009 $41,900 $39,792 $37,683 $35,575 $33,466 $31,358 $29,250 $27,141Barn Required Return per Kg 0.07 0.07 0.06 0.06 0.06 0.06 0.05 0.05 0.05 0.04Associated Equipment Required Return per Kg 0.02 0.02 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.01Barn, Equipment, and Other Assets Required Return per Kg $0.09 $0.09 $0.08 $0.08 $0.07 $0.07 $0.06 $0.06 $0.05 $0.05

Annual Required Return on Land $10,188 $10,188 $10,188 $10,188 $10,188 $16,723 $16,723 $16,723 $16,723 $16,723Land Required Return per Kg $0.02 $0.02 $0.02 $0.02 $0.02 $0.03 $0.03 $0.03 $0.03 $0.03

Total Capital Costs per KgTotal Depreciation per Kg 0.09 0.09 0.09 0.09 0.09 0.08 0.08 0.08 0.08 0.08Total Required Return per Kg 0.11 0.11 0.10 0.10 0.09 0.10 0.09 0.09 0.09 0.08Total Capital Cost per Kg $0.20 $0.20 $0.19 $0.18 $0.18 $0.18 $0.18 $0.17 $0.17 $0.16

Cumulative Capital CostDepreciation 44,627 89,255 133,882 178,509 223,136 267,764 312,391 357,018 401,645 446,273Return on Capital Assets 46,117 90,126 132,026 171,818 209,502 245,077 278,543 309,901 339,151 366,292Return on Land 10,188 20,377 30,565 40,753 50,941 67,665 84,388 101,111 117,835 134,558Total $100,933 $199,757 $296,473 $391,080 $483,579 $580,505 $675,322 $768,031 $858,631 $947,123

Average Farm 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Barn

Opening Balance 594,915 580,042 565,169 550,296 535,424 520,551 505,678 490,805 475,932 461,059Depreciation 14,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873Closing Balance 580,042 565,169 550,296 535,424 520,551 505,678 490,805 475,932 461,059 446,186

Associated EquipmentOpening Balance 232,793 221,153 209,514 197,874 186,234 174,595 162,955 151,315 139,676 128,036Depreciation 11,640 11,640 11,640 11,640 11,640 11,640 11,640 11,640 11,640 11,640Closing Balance 221,153 209,514 197,874 186,234 174,595 162,955 151,315 139,676 128,036 116,396

Value of Barn and Equipment 814,452 787,939 761,427 734,914 708,402 681,889 655,377 628,864 602,352 575,839Value of Land 215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643Average Asset Balance (Including land) $1,030,094 $1,003,582 $977,069 $950,557 $924,044 $897,532 $871,019 $844,507 $817,994 $791,482

Average Asset Balance per Kg 2.1 2.0 1.9 1.8 1.8 1.7 1.6 1.6 1.5 1.4

Production% Change in Annual Production 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.5% 0.8% -1.7% 3.4%Annual Production (Kg) 498,218 504,196 510,247 516,370 522,566 528,837 536,575 540,990 531,987 549,868

Depreciation SummaryAnnual Depreciation $26,513 $26,513 $26,513 $26,513 $26,513 $26,513 $26,513 $26,513 $26,513 $26,513Barn Depreciation per Kg $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03Associated Equipment Depreciation per Kg $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02Depreciation per Kg $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05

Required Return on Capital AssetsWeighted Average Cost of Capital (WACC) 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72%

Annual Required Return on Barn, Capital Equipment and Vehicles $38,480 $37,227 $35,974 $34,722 $33,469 $32,217 $30,964 $29,711 $28,459 $27,206Barn Required Return per Kg 0.06 0.05 0.05 0.05 0.05 0.05 0.04 0.04 0.04 0.04Associated Equipment Required Return per Kg 0.02 0.02 0.02 0.02 0.02 0.02 0.01 0.01 0.01 0.01Barn, Equipment, and Other Assets Required Return per Kg $0.08 $0.07 $0.07 $0.07 $0.06 $0.06 $0.06 $0.05 $0.05 $0.05

Annual Required Return on Land $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188Land Required Return per Kg $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02

Total Capital Costs per KgTotal Depreciation per Kg 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05Total Required Return per Kg 0.10 0.09 0.09 0.09 0.08 0.08 0.08 0.07 0.07 0.07Total Capital Cost per Kg $0.15 $0.15 $0.14 $0.14 $0.13 $0.13 $0.13 $0.12 $0.12 $0.12

Cumulative Capital CostDepreciation 26,513 53,025 79,538 106,050 132,563 159,075 185,588 212,100 238,613 265,125Return on Capital Assets 38,480 75,707 111,681 146,403 179,872 212,088 243,052 272,764 301,222 328,428Return on Land 10,188 20,377 30,565 40,753 50,941 61,130 71,318 81,506 91,694 101,883Total $75,180 $149,108 $221,783 $293,206 $363,376 $432,293 $499,958 $566,370 $631,529 $695,436

DifferenceDepreciation 18,115 36,229 54,344 72,459 90,574 108,688 126,803 144,918 163,033 181,147Return on Capital Assets 7,638 14,419 20,345 25,416 29,630 32,988 35,491 37,138 37,928 37,863Return on Land - - - - - 6,535 13,070 19,605 26,140 32,676Total $25,752 $50,649 $74,690 $97,875 $120,204 $148,212 $175,364 $201,661 $227,102 $251,686

Economic and Cost Analysis of the BC Mainstream Chicken Broiler IndustryPricewaterhouseCoopers LLP

November 201635

Serecon ModelBarn

Opening Balance DepreciationClosing Balance

Associated EquipmentOpening Balance DepreciationClosing Balance

Value of Barn and EquipmentValue of LandAverage Asset Balance (Including land)

Average Asset Balance per Kg

Production% Change in Annual ProductionAnnual Production (kg)

Depreciation SummaryAnnual DepreciationBarn Depreciation per KgAssociated Equipment Depreciation per KgDepreciation per Kg

Required Return on Capital AssetsWeighted Average Cost of Capital (WACC)

Annual Required Return on Barn, Capital Equipment and VehiclesBarn Required Return per KgAssociated Equipment Required Return per KgBarn, Equipment, and Other Assets Required Return per Kg

Annual Required Return on LandLand Required Return per Kg

Total Capital Costs per KgTotal Depreciation per KgTotal Required Return per KgTotal Capital Cost per Kg

Cumulative Capital CostDepreciationReturn on Capital AssetsReturn on LandTotal

Average FarmBarn





Production% Change in Annual ProductionAnnual Production (Kg)







DifferenceDepreciationReturn on Capital AssetsReturn on LandTotal

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

503,522 478,346 453,170 427,994 402,818 377,642 352,466 327,290 302,113 276,93725,176 25,176 25,176 25,176 25,176 25,176 25,176 25,176 25,176 25,176

478,346 453,170 427,994 402,818 377,642 352,466 327,290 302,113 276,937 251,761

48,628 29,177 9,726 (9,726) (29,177) (48,628) (68,079) (87,530) (106,981) (126,432)19,451 19,451 19,451 19,451 19,451 19,451 19,451 19,451 19,451 19,45129,177 9,726 (9,726) (29,177) (48,628) (68,079) (87,530) (106,981) (126,432) (145,884)

529,837 485,209 440,582 395,955 351,328 306,700 262,073 217,446 172,819 128,191590,742 590,742 590,742 590,742 590,742 658,695 658,695 658,695 658,695 658,695

$1,120,578 $1,075,951 $1,031,324 $986,697 $942,069 $965,395 $920,768 $876,141 $831,514 $786,886

2.1 1.9 1.8 1.7 1.6 1.6 1.5 1.4 1.3 1.2

-0.8% 2.7% 0.3% 3.1% 1.4% 4.5% 1.2% 1.2% 1.2% 1.2%545,544 560,056 561,456 578,959 586,818 613,225 620,583 628,030 635,567 643,194

$44,627 $44,627 $44,627 $44,627 $44,627 $44,627 $44,627 $44,627 $44,627 $44,627$0.05 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04$0.04 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03$0.08 $0.08 $0.08 $0.08 $0.08 $0.07 $0.07 $0.07 $0.07 $0.07

4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72%

$25,033 $22,924 $20,816 $18,707 $16,599 $14,490 $12,382 $10,273 $8,165 $6,0570.04 0.04 0.04 0.03 0.03 0.03 0.03 0.02 0.02 0.020.00 0.00 - (0.00) (0.00) (0.00) (0.01) (0.01) (0.01) (0.01)

$0.05 $0.04 $0.04 $0.03 $0.03 $0.02 $0.02 $0.02 $0.01 $0.01

$27,910 $27,910 $27,910 $27,910 $27,910 $31,121 $31,121 $31,121 $31,121 $31,121$0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05

0.08 0.08 0.08 0.08 0.08 0.07 0.07 0.07 0.07 0.070.10 0.09 0.09 0.08 0.08 0.07 0.07 0.07 0.06 0.06

$0.18 $0.17 $0.17 $0.16 $0.15 $0.15 $0.14 $0.14 $0.13 $0.13

490,900 535,527 580,154 624,782 669,409 714,036 758,663 803,291 847,918 892,545391,324 414,249 435,064 453,772 470,371 484,861 497,243 507,516 515,681 521,738162,468 190,379 218,289 246,199 274,109 305,230 336,351 367,471 398,592 429,713

$1,044,693 $1,140,154 $1,233,507 $1,324,752 $1,413,888 $1,504,127 $1,592,257 $1,678,278 $1,762,191 $1,843,995

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

446,186 431,313 416,441 401,568 386,695 371,822 356,949 342,076 327,203 312,33014,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873

431,313 416,441 401,568 386,695 371,822 356,949 342,076 327,203 312,330 297,458

116,396 104,757 93,117 81,477 69,838 58,198 46,559 34,919 23,279 11,64011,640 11,640 11,640 11,640 11,640 11,640 11,640 11,640 11,640 11,640

104,757 93,117 81,477 69,838 58,198 46,559 34,919 23,279 11,640 0

549,326 522,814 496,301 469,789 443,276 416,764 390,251 363,739 337,226 310,714215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643

$764,969 $738,457 $711,944 $685,432 $658,919 $632,407 $605,894 $579,382 $552,869 $526,357

1.4 1.3 1.3 1.2 1.1 1.0 1.0 0.9 0.9 0.8

-0.8% 2.7% 0.3% 3.1% 1.4% 4.5% 1.2% 1.2% 1.2% 1.2%545,544 560,056 561,456 578,959 586,818 613,225 620,583 628,030 635,567 643,194

$26,513 $26,513 $26,513 $26,513 $26,513 $26,513 $26,513 $26,513 $26,513 $26,513$0.03 $0.03 $0.03 $0.03 $0.03 $0.02 $0.02 $0.02 $0.02 $0.02$0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02$0.05 $0.05 $0.05 $0.05 $0.05 $0.04 $0.04 $0.04 $0.04 $0.04

4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72%

$25,953 $24,701 $23,448 $22,196 $20,943 $19,690 $18,438 $17,185 $15,933 $14,6800.04 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.02 0.020.01 0.01 0.01 0.01 0.01 0.00 0.00 0.00 0.00 0.00

$0.05 $0.04 $0.04 $0.04 $0.04 $0.03 $0.03 $0.03 $0.03 $0.02

$10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188$0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02

0.05 0.05 0.05 0.05 0.05 0.04 0.04 0.04 0.04 0.040.07 0.06 0.06 0.06 0.05 0.05 0.05 0.04 0.04 0.04

$0.11 $0.11 $0.11 $0.10 $0.10 $0.09 $0.09 $0.09 $0.08 $0.08

291,638 318,150 344,663 371,175 397,688 424,200 450,713 477,225 503,738 530,250354,382 379,083 402,531 424,727 445,670 465,360 483,798 500,983 516,916 531,596112,071 122,259 132,447 142,636 152,824 163,012 173,200 183,389 193,577 203,765

$758,090 $819,492 $879,641 $938,537 $996,181 $1,052,573 $1,107,711 $1,161,597 $1,214,230 $1,265,611

199,262 217,377 235,492 253,606 271,721 289,836 307,950 326,065 344,180 362,29536,943 35,166 32,533 29,045 24,701 19,501 13,445 6,533 (1,234) (9,858)50,398 68,119 85,841 103,563 121,285 142,218 163,150 184,083 205,015 225,947

$286,602 $320,662 $353,866 $386,215 $417,707 $451,554 $484,545 $516,681 $547,960 $578,384


November 201636

Serecon ModelBarn












Average FarmBarn













2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

251,761 226,585 201,409 176,233 151,057 125,881 100,704 75,528 50,352 25,17625,176 25,176 25,176 25,176 25,176 25,176 25,176 25,176 25,176 25,176

226,585 201,409 176,233 151,057 125,881 100,704 75,528 50,352 25,176 (0)

(145,884) (165,335) (184,786) (204,237) (223,688) 389,591 358,423 327,256 296,089 264,92219,451 19,451 19,451 19,451 19,451 31,167 31,167 31,167 31,167 31,167

(165,335) (184,786) (204,237) (223,688) (243,139) 358,423 327,256 296,089 264,922 233,754

83,564 38,937 (5,690) (50,318) (94,945) 487,300 430,956 374,613 318,269 261,926727,253 727,253 727,253 727,253 727,253 802,946 802,946 802,946 802,946 802,946

$810,817 $766,189 $721,562 $676,935 $632,308 $1,290,245 $1,233,902 $1,177,558 $1,121,215 $1,064,872

1.2 1.2 1.1 1.0 0.9 1.9 1.9 1.8 1.7 1.6

1.2% 1.2% 1.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%650,912 658,723 666,628 666,628 666,628 666,628 666,628 666,628 666,628 666,628

$44,627 $44,627 $44,627 $44,627 $44,627 $56,343 $56,343 $56,343 $56,343 $56,343$0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04 $0.04$0.03 $0.03 $0.03 $0.03 $0.03 $0.05 $0.05 $0.05 $0.05 $0.05$0.07 $0.07 $0.07 $0.07 $0.07 $0.08 $0.08 $0.08 $0.08 $0.08

4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72%

$3,948 $1,840 -$269 -$2,377 -$4,486 $23,023 $20,361 $17,699 $15,037 $12,3750.02 0.02 0.01 0.01 0.01 0.01 0.01 0.00 0.00 0.00

(0.01) (0.01) (0.01) (0.02) (0.02) 0.03 0.02 0.02 0.02 0.02$0.01 $0.00 ($0.00) ($0.00) ($0.01) $0.03 $0.03 $0.03 $0.02 $0.02

$34,360 $34,360 $34,360 $34,360 $34,360 $37,936 $37,936 $37,936 $37,936 $37,936$0.05 $0.05 $0.05 $0.05 $0.05 $0.06 $0.06 $0.06 $0.06 $0.06

0.07 0.07 0.07 0.07 0.07 0.08 0.08 0.08 0.08 0.080.06 0.05 0.05 0.05 0.04 0.09 0.09 0.08 0.08 0.08

$0.13 $0.12 $0.12 $0.11 $0.11 $0.18 $0.17 $0.17 $0.16 $0.16

937,172 981,800 1,026,427 1,071,054 1,115,681 1,172,025 1,228,368 1,284,711 1,341,055 1,397,398525,686 527,525 527,257 524,879 520,393 543,416 563,777 581,476 596,513 608,888464,072 498,432 532,792 567,152 601,511 639,447 677,383 715,319 753,255 791,191

$1,926,931 $2,007,757 $2,086,475 $2,163,085 $2,237,586 $2,354,889 $2,469,529 $2,581,507 $2,690,823 $2,797,478

2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

297,458 282,585 267,712 252,839 237,966 223,093 208,220 193,347 178,475 163,60214,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873

282,585 267,712 252,839 237,966 223,093 208,220 193,347 178,475 163,602 148,729

337,849 320,956 304,064 287,171 270,279 253,387 236,494 219,602 202,709 185,81716,892 16,892 16,892 16,892 16,892 16,892 16,892 16,892 16,892 16,892

320,956 304,064 287,171 270,279 253,387 236,494 219,602 202,709 185,817 168,924

619,424 587,658 555,893 524,128 492,362 460,597 428,832 397,066 365,301 333,536215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643

$835,066 $803,301 $771,536 $739,770 $708,005 $676,240 $644,474 $612,709 $580,944 $549,179

1.3 1.2 1.2 1.1 1.1 1.0 1.0 0.9 0.9 0.8

1.2% 1.2% 1.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%650,912 658,723 666,628 666,628 666,628 666,628 666,628 666,628 666,628 666,628

$31,765 $31,765 $31,765 $31,765 $31,765 $31,765 $31,765 $31,765 $31,765 $31,765$0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02$0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03$0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05

4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72%

$29,265 $27,765 $26,264 $24,763 $23,262 $21,761 $20,261 $18,760 $17,259 $15,7580.02 0.02 0.02 0.02 0.02 0.02 0.01 0.01 0.01 0.010.02 0.02 0.02 0.02 0.02 0.02 0.02 0.01 0.01 0.01

$0.04 $0.04 $0.04 $0.04 $0.03 $0.03 $0.03 $0.03 $0.03 $0.02

$10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188$0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02

0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.050.06 0.06 0.05 0.05 0.05 0.05 0.05 0.04 0.04 0.04

$0.11 $0.11 $0.10 $0.10 $0.10 $0.10 $0.09 $0.09 $0.09 $0.09

562,016 593,781 625,546 657,312 689,077 720,842 752,608 784,373 816,138 847,904560,861 588,625 614,889 639,652 662,914 684,676 704,936 723,696 740,955 756,713213,953 224,142 234,330 244,518 254,706 264,895 275,083 285,271 295,459 305,648

$1,336,830 $1,406,548 $1,474,765 $1,541,482 $1,606,698 $1,670,413 $1,732,627 $1,793,340 $1,852,553 $1,910,265

375,157 388,019 400,880 413,742 426,604 451,182 475,760 500,339 524,917 549,495(35,175) (61,100) (87,633) (114,773) (142,521) (141,259) (141,159) (142,220) (144,442) (147,825)250,119 274,291 298,462 322,634 346,805 374,553 402,300 430,048 457,796 485,544

$590,100 $601,209 $611,710 $621,603 $630,889 $684,476 $736,902 $788,167 $838,271 $887,213


November 201637

Serecon ModelBarn












Average FarmBarn













2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

1,336,178 1,291,639 1,247,100 1,202,560 1,158,021 1,113,482 1,068,942 1,024,403 979,864 935,32544,539 44,539 44,539 44,539 44,539 44,539 44,539 44,539 44,539 44,539

1,291,639 1,247,100 1,202,560 1,158,021 1,113,482 1,068,942 1,024,403 979,864 935,325 890,785

233,754 202,587 171,420 140,253 109,085 77,918 46,751 15,584 (15,584) (46,751)31,167 31,167 31,167 31,167 31,167 31,167 31,167 31,167 31,167 31,167

202,587 171,420 140,253 109,085 77,918 46,751 15,584 (15,584) (46,751) (77,918)

1,532,079 1,456,373 1,380,666 1,304,960 1,229,253 1,153,547 1,077,840 1,002,134 926,427 850,721886,517 886,517 886,517 886,517 886,517 978,786 978,786 978,786 978,786 978,786

$2,418,596 $2,342,889 $2,267,183 $2,191,476 $2,115,770 $2,132,333 $2,056,626 $1,980,920 $1,905,213 $1,829,507

3.6 3.5 3.4 3.3 3.2 3.2 3.1 3.0 2.9 2.7

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%666,628 666,628 666,628 666,628 666,628 666,628 666,628 666,628 666,628 666,628

$75,707 $75,707 $75,707 $75,707 $75,707 $75,707 $75,707 $75,707 $75,707 $75,707$0.07 $0.07 $0.07 $0.07 $0.07 $0.07 $0.07 $0.07 $0.07 $0.07$0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05$0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11

4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72%

$72,385 $68,808 $65,231 $61,654 $58,077 $54,500 $50,924 $47,347 $43,770 $40,1930.09 0.09 0.09 0.08 0.08 0.08 0.07 0.07 0.07 0.060.02 0.01 0.01 0.01 0.01 0.00 0.00 0.00 (0.00) (0.00)

$0.11 $0.10 $0.10 $0.09 $0.09 $0.08 $0.08 $0.07 $0.07 $0.06

$41,884 $41,884 $41,884 $41,884 $41,884 $46,244 $46,244 $46,244 $46,244 $46,244$0.06 $0.06 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 $0.07 $0.07

0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.110.17 0.17 0.16 0.16 0.15 0.15 0.15 0.14 0.14 0.13

$0.28 $0.28 $0.27 $0.27 $0.26 $0.26 $0.26 $0.25 $0.25 $0.24

1,473,105 1,548,811 1,624,518 1,700,224 1,775,931 1,851,637 1,927,344 2,003,050 2,078,757 2,154,463681,273 750,081 815,312 876,966 935,043 989,543 1,040,467 1,087,814 1,131,584 1,171,777833,076 874,960 916,844 958,729 1,000,613 1,046,857 1,093,101 1,139,344 1,185,588 1,231,832

$2,987,453 $3,173,852 $3,356,674 $3,535,919 $3,711,587 $3,888,038 $4,060,911 $4,230,209 $4,395,929 $4,558,072

2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

148,729 133,856 118,983 104,110 89,237 74,364 59,492 44,619 29,746 14,87314,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873 14,873

133,856 118,983 104,110 89,237 74,364 59,492 44,619 29,746 14,873 0

168,924 152,032 135,139 118,247 101,355 84,462 67,570 50,677 33,785 16,89216,892 16,892 16,892 16,892 16,892 16,892 16,892 16,892 16,892 16,892

152,032 135,139 118,247 101,355 84,462 67,570 50,677 33,785 16,892 0

301,770 270,005 238,240 206,475 174,709 142,944 111,179 79,413 47,648 15,883215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643 215,643

$517,413 $485,648 $453,883 $422,117 $390,352 $358,587 $326,821 $295,056 $263,291 $231,525

0.8 0.7 0.7 0.6 0.6 0.5 0.5 0.4 0.4 0.3

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%666,628 666,628 666,628 666,628 666,628 666,628 666,628 666,628 666,628 666,628

$31,765 $31,765 $31,765 $31,765 $31,765 $31,765 $31,765 $31,765 $31,765 $31,765$0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02$0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 $0.03$0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05

4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72% 4.72%

$14,257 $12,757 $11,256 $9,755 $8,254 $6,754 $5,253 $3,752 $2,251 $7500.01 0.01 0.01 0.01 0.01 0.00 0.00 0.00 0.00 0.000.01 0.01 0.01 0.01 0.01 0.01 0.00 0.00 0.00 0.00

$0.02 $0.02 $0.02 $0.01 $0.01 $0.01 $0.01 $0.01 $0.00 $0.00

$10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188 $10,188$0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02

0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.050.04 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02

$0.08 $0.08 $0.08 $0.08 $0.08 $0.07 $0.07 $0.07 $0.07 $0.06

879,669 911,434 943,199 974,965 1,006,730 1,038,495 1,070,261 1,102,026 1,133,791 1,165,557770,971 783,727 794,983 804,738 812,993 819,746 824,999 828,751 831,002 831,752315,836 326,024 336,212 346,401 356,589 366,777 376,966 387,154 397,342 407,530

$1,966,476 $2,021,186 $2,074,395 $2,126,104 $2,176,312 $2,225,019 $2,272,225 $2,317,931 $2,362,135 $2,404,839

(824,302)

593,436 637,377 681,318 725,259 769,201 813,142 857,083 901,024 944,965 988,907(89,698) (33,647) 20,328 72,227 122,050 169,797 215,468 259,063 300,582 340,025517,240 548,936 580,632 612,328 644,024 680,080 716,135 752,191 788,246 824,302

$1,020,978 $1,152,666 $1,282,278 $1,409,815 $1,535,275 $1,663,019 $1,788,686 $1,912,278 $2,033,793 $2,153,233


November 201638


Appendix D: Benefits from Production Growth


November 2016

Benefits from Production Growth 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Average Live Price (Unadjusted) 1.18 1.29 1.46 1.52 1.45 1.63 1.71 1.76 1.67 1.63 1.62

Serecon Average Chick Cost 0.31 0.31 0.32 0.34 0.34 0.35 0.36 0.37 0.36 0.36 0.37

Serecon Average Feed Cost 0.50 0.54 0.68 0.72 0.64 0.71 0.81 0.95 0.87 0.85 0.82

Margin per Kg $0.36 $0.44 $0.45 $0.46 $0.48 $0.56 $0.54 $0.44 $0.44 $0.42 $0.43

BC Growers

Percentage Change in Production 1.2% 1.5% 0.8% -1.7% 3.4% -0.8% 2.7% 0.3% 3.1% 1.4% 4.5%

Actual Mainstream Domestic Production in BC 181,704,365 184,363,079 185,879,953 182,786,696 188,930,455 187,444,647 192,430,849 192,912,078 198,925,786 201,626,192 210,699,371

BC Annual Production Increase from 2006 - 2,658,714 4,175,588 1,082,331 7,226,090 5,740,282 10,726,484 11,207,713 17,221,421 19,921,827 28,995,006

Incremental Margin from Production Growth

Incremental Margin from Production Increases - 1,160,529 1,882,773 492,770 3,459,250 3,228,540 5,842,409 4,908,605 7,576,687 8,331,972 12,383,284

Cumulative Incremental Margin from Production Increases - $1,160,529 $3,043,301 $3,536,071 $6,995,321 $10,223,860 $16,066,270 $20,974,875 $28,551,562 $36,883,534 $49,266,817

Average Farm 1.2% 1.5% 0.8% -1.7% 3.4% -0.8% 2.7% 0.3% 3.1% 1.4% 4.5%

Annual Production for an Average Farm 528,837 536,575 540,990 531,987 549,868 545,544 560,056 561,456 578,959 586,818 613,225

Average Farm Production Increase from 2006 - 7,738 12,153 3,150 21,031 16,707 31,219 32,619 50,122 57,981 84,388

Incremental Margin from Production Growth

Incremental Margin from Production Increases - 3,378 5,480 1,434 10,068 9,396 17,004 14,286 22,051 24,250 36,041

Cumulative Incremental Margin from Production Increases - $3,378 $8,857 $10,291 $20,359 $29,756 $46,760 $61,046 $83,097 $107,347 $143,387

Source: BC annual domestic production (British Columbia Chicken Marketing Board). Percentage change in BC annual domestic production is applied to Average farm production in 2016 to calculate historical production levels.


Appendix E – Supporting Calculations for Adjustments per Kilogram


November 2016

Last 10 Years 40-Year Period

Adjustments to FCR Compared to Ontario

Mainstream Domestic Production for an Average Farm 5,521,089

Incremental Margin from Outdated FCR ($) 237,388

Incremental Margin from Outdated FCR ($/kg) $0.04

Adjustments toSerecon Linkage Model

Total Production of an Average Farm (Kg): 5,521,089 24,522,216

Serecon Farm Required Return ($):

Barn and Associated Equipment 446,273 2,154,463

Land 223,168 1,231,832

Serecon Farm Required Return ($/kg):

Barn and Associated Equipment 0.08 0.09

Land 0.04 0.05

Average Farm Required Return ($):

Barn and Associated Equipment 265,125 1,165,557

Land 101,883 407,530

Average Farm Required Return ($/kg): 0.05 0.05

Barn and Associated Equipment 0.02 0.02

Land

Difference ($/kg)

Barn and Associated Equipment $0.03 $0.04

Land $0.02 $0.03

Production Volume Adjustment

Mainstream Domestic Production for an Average Farm 5,521,089

Cumulative Incremental Margin from Production Growth 107,347

Incremental Margin per Kg from Production Growth $0.02


Appendix F: Quota Values


November 2016

To compare quota values across different provinces, quota values per kg were obtained for each of the provinces. These quota values were then multiplied by the average industry live weight in BC of 1.929kg to obtain comparable figures.

BC quota values are based on average values reported by Sunrise Poultry, Sofina Foods, and Western Hatcheries.

Quota Value per Unit (1.929Kg)

1990 1997 2000 2003 2005 2006 2010 2011 2012 2013 2014 2015 2016

BC 22.00 23.00 25.00 48.00 56.67 57.50 61.33 79.00 90.78 105.00 100.00 100.72 105.08

AB 97.68

SK 98.09 98.09 111.71 114.43

MB 117.38

ON 125.39 116.57 120.75

Quota Value per Kg

1990 1997 2000 2003 2005 2006 2010 2011 2012 2013 2014 2015 2016

BC 11.40 11.92 12.96 24.88 29.38 29.81 31.80 40.95 47.06 54.43 51.84 52.22 54.48

AB 50.64

SK 50.85 50.85 57.91 59.32

MB 60.85

ON 65.00 60.43 62.60


Appendix G: BC Average Farmer Income


November 2016

BC Annual Average Farmer Income ($'s) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014All farm types 57,572 62,182 69,672 66,609 63,494 66,981 70,382 79,960 77,683 86,098 86,957

Crop production 55,359 58,123 71,316 66,698 63,312 64,088 62,156 68,003 70,597 80,661 77,014

Oilseed and grain farming 55,862 69,112 72,342 75,269 82,696 81,162 74,064 85,369 95,009 87,144 87,003

Potato farming 72,746 90,160 99,010 118,369 91,958 134,139 107,192 129,452 107,384 129,729 189,960

Other vegetable (except potato) and melon farming 38,196 39,750 40,405 42,077 34,973 44,935 36,063 39,540 48,419 51,126 56,646

Fruit and tree nut farming 51,261 50,076 65,118 64,560 58,335 51,037 51,583 56,899 57,686 68,148 60,780

Greenhouse, nursery and floriculture production 80,731 101,464 121,012 105,480 102,225 119,628 116,949 115,181 122,508 139,482 147,198

Other crop farming 47,293 40,826 53,426 45,582 47,602 49,369 46,352 53,808 55,595 71,383 66,817

Animal production 59,606 65,457 68,272 66,533 63,617 69,691 78,329 93,369 85,300 92,573 97,637

Beef cattle ranching and farming, including feedlots 36,545 45,107 42,823 41,129 36,809 39,783 41,832 48,837 45,779 54,769 71,160

Dairy cattle and milk production 87,458 95,310 104,595 106,805 102,181 100,588 140,296 145,042 147,376 138,088 180,735

Hog and pig farming 98,589 108,858 F 35,295 53,449 145,337 83,801 93,665 46,094 29,148 79,705

Other animal production 52,054 51,513 61,320 50,330 46,104 52,580 50,203 65,694 76,137 72,276 57,161

Poultry and egg production 120,421 131,071 131,741 135,519 134,330 147,703 171,979 203,600 161,980 179,353 159,226Source: Statistics Canada

Serecon Net Income Calculation 2008 2009 2010 2011 2012 2013 2014 2015 2016

Average Farm Annual Production 540,990 531,987 549,868 545,544 560,056 561,456 578,959 586,818 613,225

Live Price 1.455 1.517 1.454 1.626 1.715 1.758 1.670 1.627 1.617

Serecon Cost Including Investment Cost 1.537 1.581 1.467 1.560 1.668 1.821 1.737 1.708 1.707

Investment Cost 0.138 0.128 0.115 0.120 0.126 0.127 0.125 0.123 0.125

Serecon Cost Excluding Investment Cost per Kg 1.399 1.452 1.353 1.440 1.542 1.695 1.612 1.585 1.582

Net Income per Kg 0.056 0.064 0.102 0.186 0.173 0.063 0.058 0.042 0.035

Tax (26%) 26% 26% 26% 26% 26% 26% 26% 26% 26%

Net Income per Kg after Tax 0.041 0.048 0.075 0.137 0.128 0.047 0.043 0.031 0.026

Annual Net Income 22,362 25,333 41,465 74,980 71,528 26,181 24,843 18,121 15,961

Note: Investment cost per kg is calculated using capital cost composition from Serecon Linkage Model A-135 data. Serecon investment cost as a percentage of capital cost for A-135 was applied to other periods to calculate investment cost.

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