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
AGRICULTURE, FOOD AND RURAL AFFAIRS APPEAL TRIBUNAL
APPEAL:
Fischer v Ontario Flue-Cured Tobacco Growers’ Marketing Board
Fischer v OFCTGMB 1997 ONAFRAAT 52
STATUTE:
Ministry of Agriculture, Food and Rural Affairs Act
HEARING:
November 20, 1997
November 25, 1997
1997-52
NEUTRAL CITATION:
1997 ONAFRAAT 52
Fischer v Ontario Flue-Cured Tobacco Growers’ Marketing Board
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 Mr. Joe Fischer, West Lorne, Ontario from a decision of the Ontario Flue-Cured Tobacco Growers’ Marketing Board to deny his request that the Board institute a policy of pooling the proceeds of sale of tobacco by grade.
Before:
Mr. James Rickard, Chair; Dr. Denis O’Connor, Member; Mrs. Karen Ratcliffe, Member.
Appearances:
Mr. Joe Fischer, appellant in person.
Mr. Dennis Fischer, son of appellant.
Mr. Barry Bresner, counsel for the respondent, the Ontario Flue-Cured Tobacco Growers’ Marketing Board.
Mr. Frank Menich, Chair, the Ontario Flue-Cured Tobacco Growers’ Marketing Board.
DECISION OF THE BOARD
This appeal was heard in Guelph, Ontario, on November 20, 1997. Mr. Joe Fischer, West Lorne, Ontario, appealed to the Farm Products Appeal Tribunal (the Tribunal) from a decision of the Ontario Flue-Cured Tobacco Growers’ Marketing Board (the Board) to deny his request that the Board institute a policy of pooling the proceeds of sale of tobacco by grade.
The Background
Mr. Fischer has had hearings before the Board on July 15, 1993, June 21, 1994, May 17, 1995 and March 31, 1997 on the issue of his proposal for pooling the proceeds of sale of tobacco by grade. Each time the Board rejected his proposal. On April 15, 1997, the Board issued reasons for their decision saying that the Board does not accept that pooling by grade would be a positive step.
The Regulation
Regulation 435, Section 10 states:
“The Commission authorises the local board to conduct a pool or pools for the distribution of all money received from the sale of tobacco and after deducting all necessary and proper disbursements and expenses, to distribute the remainder of the money received from the sale in such manner that every producer receives a share of the remainder of the money received from the sale in relation to the amount, class, variety or grade of tobacco delivered, and authorises the local board to make an initial payment on delivery of the tobacco and subsequent payments until all the remainder of the money received from the sale is distributed to the producers.”
The Issue
Should the Tribunal order the Board to institute a policy of pooling the proceeds of the sale of tobacco by grade?
The Evidence
Mr. Joe Fischer introduced his case by stating that he wanted equality for all producers. He said that shipping on the first day of marketing rounds often means a producer gets a poor price compared to the balance of the year. He said he has had to ship his crop on the first days of market two years in a row. He stated that all he is asking for is to be treated fairly for what he produces. In his opinion, the Board should implement Section 10 of Regulation 435 of the Farm Products Marketing Act. He said it is supply and demand that determines the value of the tobacco. In his opinion, all producers with the same grade should receive the same price. He said that quality of product within a grade does not play a major role in price paid for the tobacco.
Mr. Dennis Fischer, son of Joe Fischer, testified on behalf of his father. He said the quality of the grade at the auction is not the utmost factor that gives price direction, there are other factors involved. He said he does not understand why the Board has never done any case studies. In his opinion, the Board has a narrow vision towards marketing. In 1994, the Board changed to seven rounds for marketing of tobacco. He said this was an effort to distribute product more evenly but still didn’t distribute the money to producers equally.
In support of his arguments for need for price pooling, Mr. Dennis Fischer introduced into evidence a catalogue dated October 16, 1995 and another dated February 23, 1996. He pointed to the fact that an X0 4 grade of tobacco sold for $1.50 per pound on October 16, 1995 and a producer who shipped on February 23, 1996 received $2.27/lb for the same grade. He said this clearly demonstrates that the present system is inequitable. He said he believes that the grade and supply are factors in determining the different prices paid for the tobacco on the different dates. He said the tobacco industry buys the tobacco from the Board and the Board distributes the money to the producers. He is not concerned about the grading system but he is concerned about disbursing money more equitably to producers based on criteria for each grade. He said there are 192 grades already and he does not see a need to break them down further.
Mr. Joe Fischer referred to the Grades and Sales Act which defines qualities of each grade of tobacco. He said that he has no problem with the graders - they do the best they can.
Mr. Dennis Fischer said the way the present marketing of tobacco works is that the Board tells producers what dates to take their tobacco to the auction. He said if a producer is not happy with the bid, it can be rejected and the producer incurs the cost of taking it back home. When you reject a grade you in turn are rejecting a price. He said this year they are marketing their tobacco under two different farm numbers which allows them more dates for shipping and thus spreads the risk.
Mr. Dennis Fischer said this year the market opened up October 14, 1997 and will run for approximately 120 days. He said this year they will have distributed more than 60% of their crop by December 11, 1997.
Mr. Barry Bresner, counsel to the Board, spoke on their behalf. He said the reasons for the decision released by the Board on April 15, 1997 are the cornerstone of its submissions. He said Mr. Fischer has been raising this issue of “price pooling” with the Board since 1993. The Board composition changes from year to year with an annual election. Each year the Board has denied Mr. Fischer’s proposal. He said the Board defines equality by saying all producers play by the same rules and the interests of one producer are not treated differently than other producers. Regulations and decisions are put in place by the Board to treat all producers in the same way. He said that as far as the Board knows, Mr. Fischer is not representing a body of producers. He said that Mr. Fischer did run for election to the Board and price pooling was one of his platforms. He was not elected.
Mr. Bresner said tobacco is probably the most highly regulated agricultural commodity both federally and provincially. Legally, tobacco cannot move from one farm to another or to a warehouse without a permit. Tobacco can’t be grown without quota nor marketed without quota. Tobacco can only be sold to licensed buyers at the auction warehouses in Delhi and Tillsonburg. He said that since domestic tobacco consumption has fallen, the export market is of increasing importance.
He referred the Tribunal to Regulation No. 9, which goes through changes annually, made under the Farm Products Marketing Act. This regulation goes into great detail on the marketing of tobacco at tobacco auction exchanges. He said that the buyers insist on inspecting a flat even though it has been graded. He said the buyers may have six sub-grades within a grade and are willing to pay more for upper range of tobacco in a grade.
He also referred to Regulation 435, under the Farm Products Marketing Act and specifically to Section 17 which establishes a “Tobacco Industry Advisory Committee (TAC)” which consists of 16 members. He also referred to Section 12 which establishes a “Negotiating Committee for Tobacco” which is composed of up to six members appointed by the three domestic buyers and members of the local board. He said it is important that all participants in the tobacco industry
get involved and try to work by consensus in arriving at decisions that affect them all. Price pooling is not a decision that the Board would make by itself. Support of other members of the TAC would be required.
He said that the TAC have discussed the concept of pooling on several occasions over a number of years and the fact that they rejected this proposal has been communicated to Mr. Fischer. He said the entire thrust of the industry agreement, arrived at through TAC, is to encourage production of quality tobacco and the Board does not feel pooling would encourage quality production. He said there are 192 grades of tobacco and that the Graders are very highly trained people. He said pooling would eliminate the incentive of a producer to reject a bid as he would be getting the average price anyway. Supply and demand forces affect price and as well manufacturers may pay a higher price if there is a qualitative difference between the flats. Producers have five shipping options, multiple shipping numbers, an opportunity to spread out shipments of tobacco by grade and the right to reject price. All of these options are designed to even out prices received by grower for his tobacco.
Mr. Don Lindsay, Secretary/Manager, of the Board testified that about 75% of the tobacco crop is Grade A and 25% is Grade B. Domestic companies buy about 60% of our crops and exporters buy approximately 40% of our crop. He said that 1993 was probably one of the worst markets they have ever had and 1996 is probably one of the best markets they have had. He said in the springtime, TAC establishes a minimum grade price. Mr. Lindsay introduced into evidence information which showed that a very large percentage of the price paid to producers is already subject to a form of pooling. He said the price paid each year is a combination of quality and supply demand.
Mr. Lindsay said that the graders are independent and work under the Grades and Sales Act. 50% of their wages come from growers and 50% from the industry. Graders grade each flat by completing a visual inspection.
In response to questions of the Tribunal, Mr. Lindsay said there were no resolutions relative to pooling of price debated by producers at the annual meeting.
Mr. Frank Menich, Chair of the Board, also testified. He said every year since 1993 Mr. Fischer has raised the issue of price pooling thus it has been discussed at Board level at least on an annual basis. He said it has also been raised by the Board at the TAC on a few occasions. At TAC level, the belief is that quality incentives are very important and that producers need to be sensitive to world demands. He said that the Board agrees that there are fluctuations and they are market driven. According to Mr. Menich, the Board has introduced a number of marketing options to help negate some of the price fluctuations. He said producers can use two individual numbers and they are allowed to split their round three marketings before and after Christmas in order to avail themselves of market fluctuations.
Mr. Menich said that under the present system a producer is assigned a number by the Board computer. The computer randomly selects shipping dates for each producer number. He said if the producer doesn’t deliver on that date, he is penalized in that he is directed to ship at the end of the market. This ensures that there is enough tobacco on the auction each day for the processors.
Mr. Menich said that in the past five years, only Mr. Fischer has raised the issue of price pooling before the Board. He said the annual meeting and/or zone meetings provide opportunities to raise an issue. He said this issue has not been raised at an annual meeting. He said he did recall a request for more information on this issue at a zone meeting.
He said if the Board chose to pool prices by grade, they could legally do so but they would be very reluctant to do so without concurrence from TAC.
Mr. Joe Fischer stated that the March 31, 1997 hearing was the first time the Board had issued written reasons following the hearing held at the Board concerning his request for price pooling by grade after three previous appearances. He said he now was able to address these five points.
Mr. Dennis Fischer said that in the Board’s April 15 decision they state that “Pooling would negatively impact on the reputation for quality of Canadian tobacco in international markets and in the international buying community”. He said that in his opinion, a pooling system by pooling price of that grade would provide more incentive for producers. Obviously, the higher grades a producer produces the more money received. He said the present system is that a person who sells on a low market does not have the same incentive as compared to a fellow producer who sold the same grade on a high market. He said he believes there are more negatives with the present system than there would be in a pooling system.
Another reason given by the Board for rejecting his proposal is that “Pooling would encourage growers to ship their tobacco by plant position group, instead of delivering a cross-section of their crop in each shipment. That could reduce the variety of tobacco available for purchase at any given time in the market and the lack of variety would operate as a disincentive to export buyers”. He said that with the present system, when the market initially opens up a producer holds back grades of tobacco that they feel have an opportunity of getting a better price later in the marketing year. Under a pooling system there would be no need to hold back the higher quality tobacco. He said if the manufacturers want a certain type of tobacco there is a good chance the price will go up. The grower lets the auction floor work for him. Producers now hold back hoping for a better price in the third, fourth and fifth rounds.
The third reason the Board gave for denying the appeal, said Dennis Fischer, is that “Pooling would remove the incentive to achieve the top-end of a grade”. He said he can’t see how the present system is more likely to create a higher price at the top end of a grade as compared to pooling the price. He said there is no definition for the top-end of a grade. The fourth and fifth reasons are concerned with the fact that in the Board’s opinion, pooling would remove the incentive for producers to maximize the removal of sand, moisture and foreign material causing the buyers increased costs which would result in a decrease in the price they would be willing to pay for that tobacco. In the opinion of Dennis Fischer, those assumptions are not true. He said a producer has pride in his product and would not want to reduce quality. By reducing quality the producer would lower their own income. He said that, in his opinion, the money the Board receives for the tobacco must be distributed equally to all producers delivering specific grades.
Mr. Joe Fischer supported the comments of his son by stating that there are regulations in place which allow a grader to put a “W” on tobacco that is too wet. Also, if a classifier sees too much sand or foreign material in the tobacco he can reject it.
Mr. Joe Fischer said there is approximately 16 days from beginning of one round to the start of the next round. Once the auction opens, the only time they shut down is for Christmas break. He said the price received for a grade of tobacco can vary even on the same day. He said the market runs approximately 120 days.
Mr. Dennis Fischer said that if a grower does not agree with the price or grade he can reject the bid. He said a grower does not know the grade of the flat before the bid is made.
In response to a question of the Tribunal, Mr. Joe Fischer responded that he sometimes attends the annual meeting.
Mr. Joe Fischer said he realizes pooling will mean some growers get less than at present. However, pooling would give each individual protection in the market place. He said that the tobacco companies negotiate with the Board to grow the size of crop it requires. The Board then distributes that allotment among the producers according to the basic quota that they hold. The Board and the tobacco companies negotiate a minimum price that will be paid for each grade of tobacco. The tobacco companies pay the Board and the Board distributes the monies among the producers according to pounds they sold on the market.
The Findings
The Tribunal accepts that there are some inequities in the present marketing system. However, the Tribunal also believes that the price pooling system suggested by Mr. Fischer would also create some inequities in that those producers who presently receive higher cheques, would receive lower cheques in the future.
The Board presented concerns that price pooling would mean producers would not strive for high quality tobacco. Mr. Fischer argued that price pooling would not affect the quality. The Tribunal was not convinced that quality would decrease if price pooling was introduced.
Mr. Fischer argued that the Board is focused only on maintaining the present system. The Board demonstrated to the Tribunal that each year it institutes changes to try to equalize the effect of market fluctuations. The Board has implemented the option of five rounds of shipping, producers have option of splitting the third round and producers can market under two separate numbers. This means some producers could have up to 20 different dates for shipping tobacco.
Section 10 of Regulation 435 gives the Board the authority to institute price pooling. However, the Tribunal feels there should be support from a number of producers in order to implement policy changes. Mr. Fischer could have attended a zone and/or annual meeting with a resolution requesting implementation of price pooling. No evidence was presented to the Tribunal to convince them that Mr. Fischer had support for his proposal from other producers. The Tribunal admires Mr. Fischer’s dedication to this issue but was not convinced that his proposal had support from other producers. The Tribunal believes that any policy changes of the Board should move through the democratic process i.e. issues raised by growers and the industry consulted.
The Tribunal also accepts the Board’s position that to make a major change in the marketing system would be imprudent without consensus of the TAC.
Decision and Reasons
After careful consideration of all of the evidence before it, the Tribunal decided to deny
the appeal for the following reason:
The Tribunal was not provided with proof that a significant number of producers were in
favour of changing the present method of marketing their tobacco to a system of price
pooling by grade. The Tribunal believes changes in policy of a Board are best addressed
when a significant number of producers indicate an interest in making the change.
DATED at Guelph, Ontario this 25th day of November, 1997.