Stager v. Dairy Farmers of Ontario, 1997 ONAFRAAT 14

Agriculture, Food and Rural Affairs Appeal Tribunal 1 Stone Road West

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West

Guelph, (Ontario) N1G 4Y2 Tel: (519) 826-3433, Fax: (519) 826-4232 Email: AFRAAT@ontario.ca

Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: AFRAAT@ontario.ca

Stager v Dairy Farmers of Ontario

Stager v DFO 1997 ONAFRAAT 14

Ministry of Agriculture, Food and Rural Affairs Act

May 2, 1997

DATE OF DECISION:

May 13, 1997

1997-14

1997 ONAFRAAT 14

Stager v Dairy Farmers of Ontario

THE FARM PRODUCTS MARKETING ACT AND SECTION 16 OF THE MINISTRY OF AGRICULTURE AND FOOD ACT.

An Appeal to the Farm Products Appeal Tribunal by Mr. Jeff Stager, Shady Nook Farms Limited, RR #1, Ayr, Ontario from a decision of the Dairy Farmers of Ontario denying his request that he be exempted from the "continuous production" requirement so that he would be eligible for over-quota refunds for the dairy years 1994/95, 1995/96 and 1996/97.

Before:

Mr. James Rickard, Chair; Dr. Denis O’Connor, Vice-Chair; Mr. John Lammers, Member; Mrs. Karen Ratcliffe, Member.

Appearances:

Mr. Jeff Stager, appellant.

Mr. Gordon Coukell, on behalf of the respondent, the Dairy Farmers of Ontario.

Mr. Tom Graham, Counsel to the Tribunal.

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on May 2, 1997. Mr. Jeff Stager, appealed to the Farm Products Appeal Tribunal (the Tribunal) from a decision of the Dairy Farmers of Ontario (the DFO) denying his request that he be exempted from the "continuous production" requirement of the Quota Policy so that he would be eligible for over-quota refunds for the dairy years 1994/95, 1995/96 and 1996/97.

The pertinent section of the DFO’s Quota Policy effective August 1, 1994 is:

Over-Quota Levy Refund Policy:

The Board will refund Over-Quota levies for production that was required to fill 100 per cent of the provincial Quota. A producer must meet the first six-month maintenance requirement and have continuous production throughout the dairy year to be eligible to receive Over-Quota levy refunds. Levies will be refunded in two stages. First, for production that exceeds 50 per cent of February 1 Quota holdings and second, if required, for production that exceeded 100 per cent of the July 1 Quota.

The pertinent section of the DFO’s Quota Policy effective August 1, 1995 is:

DFO will refund Over-Quota levies for production that was required to fill the 100% of the provincial Quota. A producer must meet the first six-month maintenance requirement and have continuous production throughout the dairy year (August 1 to July 31) to be eligible to receive Over-Quota levy refunds. To meet the continuous production requirement, producers must not be out of production for more than six consecutive days.

Levies will be refunded after the end of the dairy year in two stages. First, for production that exceeded 50% of February 1 Quota holdings and second, if required, for production that exceeded 100% of the July 1 Quota.

The 1996 Over-Quota levies refund policy is the same as the 1995 policy.

The Background

Milk that is produced above the Quota holdings of a milk producer is over-quota milk. This over-quota milk is subject to a levy charged against it. The milk is marketed by the DFO to processors for various uses. The funds derived from this market are held for distribution to the producers who produced the over-quota milk. This distribution of a refund of part of the over- quota levy is calculated at the end of six months and again after the end of the dairy year. For example, if the domestic market was 105% of within-quota production, the extra 5% is obtained from the over-quota milk and those producers who were over-quota are refunded the over-quota levy to a maximum of 5% of their over-produced milk as long as the producers met the rest of the eligibility requirements set out in the Quota Policies of the DFO.

Mr. Stager has operated his dairy farm on a counter-seasonal production cycle since 1990. He normally begins production in July/August and produces until February/March. In the period 1990 through 1993, Mr. Stager received over-quota levy refunds when these refunds were available. In the 1994/95 dairy year, the DFO’s policy for over-quota levy refunds was changed. One of the changes required continuous production to be eligible for this refund. Mr. Stager applied to the DFO for an exemption from the continuous production requirement and the DFO denied the request.

The Issue

The issue before the Tribunal is whether or not Mr. Stager should be exempted from the continuous production requirement in the over-quota levy refund policy and thus be eligible for over-quota levy refunds for 1994/95, 1995/96 and 1996/97 (if any).

The Evidence and the Findings

Mr. Stager told the Tribunal that in 1990, he became a “counter-seasonal” milk producer. The Quota Policy at that time entitled him to over-quota levy refunds, when refunds were available. He said that in 1995, the "single pool", combining MSQ and fluid producers into one milk pool, was introduced. Prior to the introduction of this system, the DFO solicited applications from producers wishing to be counter-seasonal. He said that he registered for this program in June of 1994. The "continuous production rule" was implemented August 1, 1994. He explained that basically any producer not in continuous production was not eligible for over-quota levy refunds. This requirement automatically eliminated counter-seasonal and seasonal producers from being eligible for refunds even though they had to pay the levy on the over-quota milk they produced. He said that, in his opinion, the DFO gave insufficient consideration of the effect on counter-seasonal producers when this policy requirement was set.

Mr. Stager said that under policy changes that will take effect as of August 1997, he is once again eligible for over-quota levy refunds under the new "daily quota" plan. Mr. Stager said that it was not reasonable for him to be eligible for refunds in 1990-94, lose the eligibility for three years and then have it reinstated in August 1997 when he had made no changes in his operation.

Mr. Stager acknowledged that the DFO has done an excellent job of managing the industry and addressing the concerns of small groups of producers. However, he requested that the Tribunal direct the DFO to exempt him from the continuous production rule for the dairy years 1994/95, 1995/96 and 1996/97.

Mr. Gordon Coukell told the Tribunal that prior to 1994, the DFO operated two pools - the fluid milk pool and the MSQ or industrial pool. Fluid milk producers had to be in continuous production but MSQ producers did not. Fluid producers received a higher price for their milk. The DFO identified a problem managing two milk pools. The skim off of fat from the milk produced for the fluid milk pool was taking part of the industrial pool market to the detriment of those producers who held only MSQ. To address the unfairness of the situation, the DFO introduced a single pool for both the fluid and the industrial market. The single pool resulted in all producers receiving the same price for milk allowing MSQ holders to access the higher fluid milk price. Therefore, it appeared reasonable to have all producers included in the continuous production policy.

Mr. Coukell told the Tribunal that historically 46% of the annual milk requirement is produced in the first six months of the dairy year and 54% in the rest. He said that the market requires 50% of the annual production in the first six months so the DFO has been trying to move production practices to meet the market demand. At the same time, the DFO was attempting to allow seasonal producers to continue their practices without causing too great an impact on the industry. However, the DFO did and does feel that the requirement for continuous production was needed when the single pool was introduced and this requirement was adequately explained to Mr. Stager and has been applied uniformly to all milk producers.

Mr. Coukell told the Tribunal that, under the daily quota system that will come into effect on August 1, 1997, there is no over-quota levy and therefore, there will be no over-quota levy refund. Under the new policy, once the daily quota has been filled, any excess production will be purchased by the processors at world market prices. Producers will be allowed to accumulate up to 25 days of under-quota credits that will be used to offset over-quota production until the credits are used. Once the credits are used, the over-quota milk is purchased at world market price. Seasonal and counter-seasonal producers are out of production for a period of time. Those producers who have been producing on this cycle for the past two dairy years will be “grandfathered” and allowed to continue to follow that pattern and will be allowed to accumulate up to 90 days of under-quota credits. No new seasonal or counter-seasonal producers will be allowed.

Mr. Coukell told the Tribunal that while the DFO did not grandfather seasonal producers into every aspect of the quota policy, it did recognize their production pattern and accommodated most differences.

Mr. Coukell explained that under the present system, to be eligible for an over-quota levy refund, a producer producing more than 50% of their quota holdings by the end of January and remaining in an over-quota position at the end of July, is eligible for an over-quota levy refund if any is made. For example, if a producer is at 53% of quota at the end of January and 103% of quota at the end of July, then that producer would be eligible for an over-quota levy refund of a maximum of 3%.

Mr. Coukell said that in the dairy year 1994/95, the requirement was 102.8% of quota so Mr. Stager would have been eligible for 2.8% or 76 kilograms of over-quota levy refund. In 1995/96, he would have been eligible for 123 kilograms. Eligibility for 1996/97 will not be known until the year is completed at the end of July 1997. The refund is approximately $7.50 per kilogram so for 199 kilograms, Mr. Stager would be eligible for about $1,500.00 if he had met all of the eligibility criteria for a refund.

Mr. Coukell said that counter-seasonal producers who were over-quota had an advantage over other producers because under the policy, a producer has to be over-quota in the first six months of the dairy year to be eligible for over-quota levy refunds. These producers are at their highest production during this time.

Mr. Coukell summarized the DFO’s position by stating that the continuous production policy was a requirement established in 1994 because of the introduction of the single pool and market requirements. It is not only the seasonal producers who were affected by the continuous production requirement but any producer who was out of production for more than six days. This includes all producers who started production during the year. Mr. Coukell said that in 1994/95, there were 167 producers not eligible because they did not have continuous production. The comparable figure for 1995/96 was 219.

The Tribunal examined the evidence. Counter-seasonal producers assist the DFO in that their peak production is in the first half of the dairy year when the DFO needs more milk to meet the market demand than is historically produced in that time period. The DFO acknowledged this but the philosophy of the DFO is to encourage continuous production to meet the demand of the market and therefore, the DFO is not allowing any new counter-seasonal producers.

The Tribunal notes that over-quota levy refunds are given out in two parts. The first part is for over production in the first 6 months and the second for over production in the second six months. If a producer ships 56% of quota in the first 6 months and 50% in the second, then that producer will receive a larger refund than a producer who ships 50% of quota in the first six months and 56% in the second, even though both producers end up at 106% of quota. The Tribunal agrees that this gives an advantage to counter-seasonal producers.

Mr. Stager told the Tribunal that he feels the DFO has done a great job of addressing the need for change to respond to the global market but the change in the over-quota levy policy, as it applies to counter-seasonal producers, has resulted in an unfair situation. Under this policy, he is required to pay into the fund but because he is out of production for a period of the year, the policy automatically excludes him from receiving any over-quota levy refunds. He feels he should have been exempted from the policy because he was a producer of record at the time when the policy was made and it was a known fact that he is out of production for several months each year. The Tribunal recognizes that any production outside of quota holdings is at the producer’s risk. The producer must recognize that the returns on this production are questionable. However, the Tribunal agrees with Mr. Stager that the current policy, as it is applied to counter-seasonal producers, results in an unfair situation for any of these producers who are over-quota compared to their continuous-producing neighbours. The first has no possibility of qualifying for a refund while the second has the possibility of qualifying. In the opinion of the Tribunal, Mr. Stager has been caught by the change in the DFO’s policy and the result of the policy change is unfair to this counter-seasonal producer. The Tribunal also notes the past practice of the DFO of “grandfathering” existing production practices when a policy is made. In fact, Mr. Stager was “grandfathered” and allowed to continue as a counter-seasonal producer, a privilege he would lose if he ceased to produce in this pattern and once lost, he could not regain.

Decision and Reasons

After careful consideration of the evidence presented and submissions made, the Tribunal decided to grant the appeal for the following reasons:

Mr. Stager was a counter-seasonal producer when the DFO instituted its policy of not paying over-quota levy refunds to producers who were not in continuous production. The policy automatically excluded Mr. Stager from eligibility for a refund but required him to pay the levy.
In the opinion of the Tribunal, if the DFO had followed its past practice of “grandfathering” the then current production practices when its policies are changed, Mr. Stager could have been “grandfathered” by the DFO and exempted from the continuous production requirement so he could be eligible to receive an over-quota levy refund.

ORDER OF THE TRIBUNAL

The Tribunal orders the Dairy Farmers of Ontario to pay an over-quota levy refund to Mr. Stager for the dairy years 1994/95, 1995/96 and 1996/97 (if marketings enable refunds to be paid). The amount of the payment is to be calculated on the same basis as the payments made to other eligible producers.

Dated at Guelph, Ontario this 13th day of May, 1997.