Archer’s Dairy Ltd. et al. v Farm Products Marketing Commission, 1997 ONAFRAAT 24

Agriculture, Food and Rural Affairs Appeal Tribunal

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

Tribunal d’appel de l’agriculture, de l’alimentation et des affaires rurales 1 Stone Road West Guelph (Ontario) N1G 4Y2 Tél.: (519) 826-3433, Téléc.: (519) 826-4232 Email: AFRAAT@ontario.ca

AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL

APPEAL: Archer’s Dairy Ltd. et al. v Farm Products Marketing Commission

Archer’s Dairy Ltd. et al. v FPMC 1997 ONAFRAAT 24

STATUTE: Ministry of Agriculture, Food and Rural Affairs Act

HEARING: May 27, 1997

DATE OF DECISION: June 24, 1997

1997-24

NEUTRAL CITATION: 1997 ONAFRAAT 24

Archer’s Dairy Ltd. et al. v Farm Products Marketing Commission

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

AND IN THE MATTER OF: An Appeal to the Farm Products Appeal Tribunal by Archer’s Dairy Ltd., Vacationland Dairy Company Ltd., Community Dairy, and Farquhar Dairies Limited from the decision of the Farm Products Marketing Commission dated May 29, 1996, allowing fluid milk products which are processed in Southern Ontario to be distributed in Northern Ontario through licensed distributors. The appellants ask that the Tribunal direct the Farm Products Marketing Commission to reopen the issue and conduct hearings in Northern Ontario on both the substance and timing of the policy changes.

Before: Mr. Jim Rickard, Chair; Mrs. Nancy McGill, Alternate-Chair; Dr. Denis O’Connor, Vice-Chair; Mrs. Moira Connell, Member; Mrs. Karen Ratcliffe, Member.

Appearances: Mr. Robert Shaprio, on behalf of the appellants, Mr. Jim Wheeler, Chair of the Farm Products Marketing Commission Ms. Dagny Ingolfsrud, Counsel to the Farm Products Marketing Commission. Mr. Tom Graham, Counsel to the Tribunal.

DECISION OF THE TRIBUNAL

This appeal was heard in Guelph, Ontario on May 27, 1997. The Farm Products Appeal Tribunal (the Tribunal) heard extensive evidence on the appellants’ request that it find that the Farm Products Marketing Commission (the Commission) had not followed proper process in arriving at its decision to modify its Northern Ontario Fluid Milk Distribution Policy (the Policy). Both parties requested an early decision on this appeal as the date for implementation of the first phase of the new policy is June 1, 1997. Therefore, the Tribunal issued a summary decision in this matter under date of May 28th, 1997. This document is the full decision and reasons of the Tribunal on this appeal.

Background

The Commission derives its authority from the Milk Act. The Commission exercises regulatory control over the provincial fluid milk distribution net work to ensure that high quality fluid milk products are distributed throughout the province in an orderly manner. The Commission requires all distributors of fluid milk products to obtain a distribution license. Processed fluid milk by-products such as butter and ice cream can be distributed without the need of a license as a fluid milk distributor.

The Commission has divided Northern Ontario into distribution districts for the purposes of licensing fluid milk distributors and has had a long standing policy generally referred to as the Northern Ontario Fluid Milk Distribution Policy (the Policy). Under the Policy, fluid milk distributors had to be licensed for each distribution area served. Some areas had only one licensed fluid milk distributor.

On February 9, 1996, the Commission announced its decision to modify its policies to:

• Merge all four distribution areas in Northern Ontario into one large area.
• Allow any type of fluid milk product processed in Southern Ontario to be distributed I Northern Ontario, through distributors licensed to serve the North.
• Facilitate the licensing of new distributors to serve Northern Ontario.

The Commission invited comments on the timing and implementation of these changes to the Policy with a deadline for commenting of March 31, 1996. On May 29, 1996, the Commission announced its decision on implementation of the new policies. The Commission said that effective immediately the policy objectives were amended to facilitate the licensing of new distributors but an adjustment period would be in place until June1, 1997, during which no new licenses were expected to be issued. Effective June 1, 1997 the four Northern Ontario Distribution areas were to be merged; distributors licensed in any of the four areas would have access to the entire area. Effective August 1, 1998 fluid milk products processed in Southern Ontario will be able to be distributed in Northern Ontario through licensed distributors.

The appellants are appealing to the Tribunal on the basis that there was no consultation by the Commission on the substance of the change in the Policy. These policy changes will have a significant detrimental impact on the appellants, in particular the decision to allow fluid milk products processed in Southern Ontario to be distributed in Northern Ontario. The appellants asked the Tribunal to direct that the Commission reopen this issue and conduct hearings, to be held in Northern Ontario, both on the substance and timing of the policy changes.

The Issue

The issue before the Tribunal is: Should the Commission be directed to delay implementation of the changes to the Policy and conduct hearings on the matter in Northern Ontario?

The Evidence and the Findings

Mr. Robert Shapiro, advocate for the appellants, told the Tribunal that the appellants in this case are the four independent dairies still operating in Northern Ontario. There are two other processing dairies in the North that are part of the large corporate dairies from Southern Ontario.

Archer’s Dairy Ltd. was founded in 1918 and is located in Kirkland Lake. The company employs 16 full time and 2 part time staff and currently serves 10 communities with a total population of 18,000.

Vacationland Dairy Company Ltd. was founded in 1954. Located in Kenora it employs 27 full-time and 1 part-time staff and serves a population of 240,000.

Community Dairy is located in Kapuskasing, founded in 1935 and employs 8 staff. The population served by Community Dairy is under 10,000.

Farquhar Dairies Limited in located in Espanola, founded in 1935 and has 30 full time personnel.

Mr. Shaprio said that the total fluid milk sold by all Northern Ontario dairies accounts for approximately 7% of Ontario’s fluid milk sales.

Mr. Shaprio argued that while the Commission has no legal obligation to consult on policy matters, it is only fair that the Commission consult on such a significant policy change as the proposed change in the Policy. He also argued that past practices of regularly consulting the stakeholders gives rise to a legal obligation to continue to do so under the doctrine of legitimate expectation..

Mr. Shaprio said that the policy was established in 1971 and reaffirmed in August 1988. In June 1993 the Tribunal recommended to the Commission that it conduct a review of the Policy and, if the review indicated a continuing need for the Policy it must be clearly enunciated to all parties.

Mr. Shapiro said that in 1993 the Commission struck an industry committee to develop a common understanding of the Commission’s Policy guidelines. The committee consisted of: Doug Gendron, vice chair of the commission; Diane Pochailo, northern processor; Susan Gillespie, commission staff; Tom Kane, Ontario Dairy Council; Ezra Gunther, southern processor; Bob Rattan, southern processor; Ken Hume, southern processor; Michael Korman, northern processor; Mike Farquhar, northern processor; Jeff Banks, southern processor; Dave Robertson, independent dairy; Dace Dexton, wholesale distributor (did not participate); Richard Bird, OMAFRA; Peter Gould, DFO. The Committee made 24 recommendations on licensing of distributors and the Commission’s Northern Ontario Fluid Milk Distribution Policy.

Mr. Shapiro told the Tribunal that, in March 1995, after the consultation and receiving the recommendations of the Committee, the Commission once again affirmed its support for the Policy. Mr. Shapiro claimed that there was no further consultation with the stakeholders until the February 19, 1996, request for comments on timing and implementation of changes.

Mr. Shapiro indicated to the Tribunal that the effect of the policy changes would be an inflow of fluid milk processed in Southern Ontario reducing the market for milk processed by the appellants. It is expected that food wholesalers who have established routes in Northern Ontario will add fluid milk products to their list of supplies to be delivered and the appellants will have difficulty surviving.

Mr. Dean Archer told the Tribunal that once Southern Ontario milk is allowed to flow north the Northern Dairies will have a difficult time surviving. He said that his dairy served a population of 18,000 but 20 years ago there were 28,000 people in the same area He said that 18,000 people do not consume a large volume of milk and he has been hampered by this low volume. His plant runs at 35 to 40% of capacity.

Diane Pochailo from Vacationland told the Tribunal that when the Commission reconfirmed the Policy in 1995 the industry stakeholders expected consultation if more changes were to come. She said the 1993 consultation was an excellent process. She said there was a hearing by the Commission when the distribution areas in the south were opened. She said that it will be difficult for Vacationland to survive as a dairy but it had plans for the future and could take over as a distributor for another dairy if needed but prefers to remain a processing dairy. She said that the plant is currently running at about 75% of capacity. She said if the policy changes proceed the plant will be gone in about two years.

Mr. Mike Farquhar told the Tribunal that he came away from the 1993 Committee process confident that the status quo would be maintained and another review would be undertaken before major changes were made to the Policy. He said that currently he co-packs for Lock City Dairy in Sault St. Marie but when the policy changes come into effect he will become Lock City’s competitor so Lock City will not survive. He also said that he operates a creamery that depends on the by product of his fluid milk plant. He said if the creamery closes that will be more jobs lost. He predicted a total of about 100 jobs lost due to this policy change. Mr. Farquhar told the Tribunal that his plant runs at about 50% of capacity.

Mr. Jim Wheeler, Chair of the Commission, spoke to the Tribunal on behalf of the Commission.

Mr. Wheeler said that the Commission firmly believes in consulting with industry. He said that the Commission views the process it started with the industry committee in 1993 and completed in 1996 with the announced policy change as one continuous consultation process.

Mr. Wheeler said that the Commission must maintain one policy position until that policy is changed. He pointed out that the Commission had reported to the industry that the Policy was not viable on the long run and would have to be changed. In support of this statement Mr. Wheeler referred the Tribunal to the Commission’s response to the industry committee’s recommendations. He said that the Commission considered these recommendations and issued a decision document dated February 8, 1995 This document received wide circulation in the industry. This document states the 24 recommendations provided by the Committee plus six alternate recommendations provided by industry stakeholders. The actions of the Commission in response to the recommendations, the Commission’s reasoning as well the future direction the Commission saw that the industry may take are also included in the document. There were no specific timing or implementation comments in the document.

For example the Commission reported:

“Recommendation #1

The committee recommends that the Ministry continue to exercise regulatory control over the fluid milk distribution network.

ACTION TAKEN:

FPMC accepted this recommendation. FPMC believes the Ministry should continue to exercise regulatory control over fluid milk distribution for the foreseeable future but that regulations should be simplified and reduced over time.

Recommendation # 4

The committee recommends that the Farm Products Marketing Commission (FPMC) continue to maintain a separate policy for Northern Ontario. Further, the committee recommends that the FPMC policy which limits fluid milk products processed in Southern Ontario from being distributed in Northern Ontario be maintained, but the committee recommends an amendment to the policy which would allow certain products which would not otherwise be available in the North to be distributed.

ACTION TAKEN:

FPMC accepted this recommendation. However, it is recognized that in the long term as interprovincial barriers come down the Northern Ontario - Southern Ontario barrier will not be viable. Industry stakeholders must realize that this protection will not continue indefinitely.

REASONS:

The Commission believes that protected distribution areas in Northern Ontario are not viable in the long run due to changes in national and international policy. This policy will help maintain the orderly marketing of milk through the evolutionary process to more open distribution in Northern Ontario.

The Commission believes consumers in Northern Ontario should have access to a choice of fluid milk products wherever feasible.”

Mr. Wheeler indicated that, in his opinion, the Commission had conducted an adequate consultation with the stakeholders prior to announcing the policy change. He noted that the Commission does not always hold hearings on an issue before changes are made and in this case it decided not to hold hearings. He noted that the appellants all agreed that the consultation with the industry committee was excellent and that was part of the process used to arrive at the decision of changing the policy.

Ms. Dagny Ingolfsrud, counsel to the Commission, argued that the doctrine of legitimate expectations did not apply to this situation. She provided case summaries to the Tribunal in support of her argument.

The Tribunal examined the evidence and submissions. The appellants inferred that the Minister had exercised undue influence on the decision of the Commission to review and then change the Policy. Mr. Wheeler pointed out that the Commission is an autonomous body appointed by the government, it serves at the will of the government and operates within the bounds of the policy of the government. Mr. Wheeler said that neither the Minister nor government gives specific direction to the Commission. The Commission has to be aware of the policy direction of the government through public documents, political speeches, and government briefings. Mr. Wheeler did say that the Minister meets annually with the Commission to discuss matters of interest to the agricultural industry. Mr. Wheeler also said that he is part of the Senior Management of the Ministry which is the body responsible for Ministry policy. In the opinion of the Tribunal, the Minister exercised his responsibilities when he directed the Commission to review the Policy.

In the opinion of the Tribunal, the Commission did consult the industry starting in 1993 and the decision document did indicate the need to change the policy to remove the northern distribution boundaries and the north south distribution boundary at some time. In the opinion of the Tribunal, there should have been no surprise in the industry when the Commission announced the implementation of the change in policy.

When the decision to make the change was announced the Commission then sought input from the stakeholders on the timing and the implementation. The Commission received many comments on the substance of the policy change, as well as timing and implementation, which were received and recorded in the summary sheet. The Commission included comments from people who felt the policy was wrong and would result in economic dislocation and financial loss. The Tribunal concludes that the Commission had the necessary information on the anticipated impact on the appellants prior to making its decision.

This appeal was on the process of whether the Commission had followed normal consultation before changing policy. Both sides agreed that this was the essence of the appeal. However, it was very difficult to separate “substance” from “process”. The Tribunal was not convinced that there was new evidence from the appellants on their future and the future of the dairy industry sufficient to warrant directing the Commission to re-open its decision on the Policy and conduct hearings on the substantive matters of the policy. In arriving at this decision the Tribunal notes that more than a year has passed since the Commission announced its intention and in the opinion of the Tribunal, that is sufficient time for those involved in the industry to develop factual information to present. None was provided.

The doctrine of legitimate expectation was raised by the appellants. The appellants argued that, in the interest of procedural fairness and simple justice, hearings should be conducted in the north before this change in policy becomes effective. The Tribunal finds that adequate consultation has taken place.

Decision and Reasons

After careful consideration of the evidence presented and submissions made the Tribunal decided to deny the appeal for the following reason:

In the opinion of the Tribunal, the Commission conducted adequate consultation with the industry before arriving at its decision.

Dated at Guelph, Ontario this 24th day of June, 1997.