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:
Niagara Country Fresh Poultry Inc. v Chicken Farmers of Ontario
Niagara Country Fresh Poultry Inc. v CFO 1998 ONAFRAAT 8
STATUTE:
Ministry of Agriculture, Food and Rural Affairs Act
HEARING:
January 23, 1998
February 4, 1998
1998-08
NEUTRAL CITATION:
1998 ONAFRAAT 8
Niagara Country Fresh Poultry Inc. v Chicken Farmers of Ontario
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 the Niagara Country Fresh Poultry Inc. from the decision of the Chicken Farmers of Ontario, dated January 14, 1998, denying Niagara’s allocation of supply for crop Quota Period A-19.
Before:
Jim Rickard, Chair; Anna Andres Member; Armand Bechard, Member.
Appearances:
Kent E. Thomson, counsel to the appellant, Niagara Country Fresh Poultry Inc.
Geoff Spurr, counsel to the respondent, the Chicken Farmers of Ontario.
DECISION OF THE TRIBUNAL
This appeal was heard in Guelph, Ontario on Friday, January 23, 1998. Niagara Country Fresh Poultry Inc. (Niagara) appealed to the Farm Products Appeal Tribunal (the Tribunal) from the decision of the Chicken Farmers of Ontario (the CFO), dated January 14, 1998, denying Niagara’s allocation of supply of chicken for processing for crop Quota Period A-19.
The Background
The CFO regulates the production of chicken in Ontario under a quota system. Each quota period a total allotment of chicken for Ontario is set by the CFO in conjunction with the Chicken Farmers of Canada (CFC). A portion of this allotment is then assigned to each licensed chicken producer according to the quota held by that producer. Producers are required to grow their allotment of chicken and market that allotment to a licensed chicken processor. There are penalty provisions for producers who grow more chicken than they are allotted by the CFO. Producers are allowed to contract with the processor of their choice to sell their production. Over the years, several systems have been implemented by the CFO to assist producers in marketing their production to processors in an orderly fashion.
The CFO passed Quota Policy No. 129-1996 effective May 31st, 1996. The effect of this policy is to establish a framework for assignment of the supply of live chicken to each processor. The relevant sections of Quota Policy No.129-1996 are as follows:
Each processor shall communicate to the AOCP its requested supply level for each quota period as determined in accordance with paragraph 5, 6 and 7 herein and the AOCP shall incorporate all such requests in any AOCP recommendation to the Board regarding individual processor supply and total supply for any quota period. The Board shall determine the individual processor supply and total supply levels for each quota period and in so doing shall take into consideration any recommendation by the AOCP. The Board shall further have regard to any special request made to it by AOCP as a result of AOCP’s operation of a special request program for period A-09 to A-16 by which the larger processors will be eligible to apply for an additional quantity of chicken from a pool of a maximum of one (1) million kgs., if required. Any such special requests will be separately identified as part of an AOCP recommendation to the Board regarding the individual processor supply and total supply for the period in question.
Applications of new entrants for supply of chicken to be purchased from producers through the Board shall be made in writing to the Board which will determine on a case by case basis whether the application should be granted.
Niagara is a new entrant into the chicken processing industry. It is currently building a new processing facility in Smithville. The building is under contract with DeMan Construction Corp. with a completion deadline of April 12, 1998, the commencement of Quota Period A-19. Niagara has requested CFO to assign a supply of live chicken of 1.6 million kilograms to it for Quota Period A-19 on the basis that it is a new entrant into the chicken processing industry that intends to target the heavy roaster, fryer, yellow chicken, Halal Chicken, Kosher Chicken as well as export markets. On January 14, 1998, the CFO denied Niagara’s request. Niagara appealed this decision to the Tribunal.
Preliminary Matters
At the beginning of the hearing, Mr. Thomson, counsel for Niagara, objected to the presence of the CFO at the hearing. He argued that, having made the decision to deny Niagara’s request, it is improper for the CFO to come before the appellant Tribunal and defend or justify its decision.
Mr. Spurr, counsel for CFO, told the Tribunal that the appeal by Niagara was premature as Niagara has not had a hearing before the CFO as is required by Section 16(5) of the Ministry of Agriculture and Food Act. Section 16(5) is as follows:
16(5) No appeal may be taken from an order, direction, policy, decision or regulation of a local board or a marketing board unless,
16(5)(a) the appellant has first applied to the local board or marketing board for a hearing and the local board or marketing board has refused to grant, in whole or in part, the relief requested by the appellant or has not decided the matter within sixty days of the application for a hearing; or
16(5)(b) the appellant and the local board or marketing board have waived their respective rights under clause (a) in writing.
The Tribunal recessed to consider the arguments and then returned and asked the parties if they were willing to waive their rights of appeal under Section 16(5)(a). Both parties indicated they waived their right to appeal and filed that waiver in writing with the Tribunal.
The Tribunal noted that it needed the relevant evidence upon which to make a decision on the matter before it. The Tribunal continued to hear the appeal and Mr. Thomson did not raise any objections to the evidence introduced by the CFO.
The Issue
The issue before the Tribunal is whether or not Niagara should have 1.6 million kilograms of chicken assigned to it for Quota Period A-19.
The Evidence and the Findings
Theo Gintonis told the Tribunal that he has a degree in economics and experience in accounting and experience in the chicken industry. He managed chicken and turkey operations encompassing 27,000 broilers and 3,000 turkeys while at the same time working at Riverview Poultry in the processing plant. Theo told the Tribunal that he is part of the management team and will be responsible for safety at the Niagara plant. He intends to introduce a Hazard Analysis Critical Control Point (HACCP) program at the plant from the beginning of operations.
Tom Gintonis told the Tribunal that he is part of Niagara’s management team and has experience in managing a processing plant and in sales.
Robert Beliak is part of Niagara’s management team and has experience in meat processing, retail sales, chicken production and business. He said that Niagara has a solid management team of young aggressive individuals who are building a new plant that will be up to or above current standards. He said the plant will target every market that it can gain access to and filed with the Tribunal letters indicating that Niagara has customers who will purchase chicken from it. Mr. Beliak told the Tribunal that these letters of intent had been gathered in a matter of a few hours to prove to the CFO that Niagara could sell the product it was asking to have assigned for processing and, given time, he was certain he could get letters totaling more than 2 million kilograms of chicken per quota period.
In response to questions, Mr. Beliak said that Niagara had not asked for a smaller allocation because it had no assurance that it would be able to grow from a small allocation to 1.6 million kilograms in a reasonable time. It needs assurance of supply to secure financing and make its solid business plan a reality.
Tom, Theo and Robert told the Tribunal of their plans for operating the plant in a responsible and efficient fashion using up to date technology that meets or exceeds current standards.
Norman Pye, the owner Northern Fryed Products in Paris, told the Tribunal that he uses 18,000 kilograms of dressed chicken meat per day. He said that currently all of his products come from Western Canada. He said he could not get product from Ontario processors on a regular basis. He told the Tribunal that he wants to expand and run a double shift in his facility and has the capability of selling this product.
In response to questions, Mr. Pye told the Tribunal that he currently obtains his products from Western Canada at a cost less than what he would have to pay if he sourced his products in Ontario and he expected Niagara would match his Western price.
Kevin Thompson, Marketing Coordinator for the CFO, told the Tribunal that if a supply is granted to Niagara the quantity of chicken would either have to be added on top of the existing requests or taken from the supply of the existing processors. In either case, since the Form 101’s have already been signed between the producers and the processors, Niagara would have to obtain its supply by reassignment of producers from the other processors. This would mean that Niagara would get the “left overs” from the other processors and would have no control over the timing, size, or quality of the incoming birds. Mr. Thompson said it is possible for CFO to allocate a supply of live chicken to Niagara for Quota Period A-19, but doing so would cause disruption in the industry and could result in Niagara not getting the quality or size of birds that it needs to meet its market demand.
Tom Posthuma, chicken producer and member of the Board of Directors for the CFO, told the Tribunal that the CFO, the Association of Ontario Chicken Processors (AOCP) and the Farm Products Marketing Commission (the Commission) had met in January to discuss the allotment of supply of live chicken to processors. At this meeting, there was a decision made to strike committees to address the industry concerns on supply setting procedures. The Commission directed CFO not to accept any more applications from new entrant processors. The CFO was directed to deal with the two new entrants that had already applied taking into consideration the fact that a review was underway.
Mr. Posthuma said that Niagara had made essentially the same presentation at this hearing as it had when it met with the CFO. He said the CFO was impressed with the presentation and understood that the principals are serious about their desire to become chicken processors. He said that when the CFO considered the request it had to address the issue of the magnitude of the supply request, the impact that request would have on the rest of the industry, the impact the request could have on the marketplace and pricing, the impact it could have on the orderly supply system and the recommendations of the AOCP. He said that the past requests for supply from new entrants had been in the order of 50,000 to 100,000 kilograms and these requests had been accommodated without disruption of the industry. The CFO felt it could not deal with a supply request of 1.6 million kilograms in the same fashion as it had these smaller requests. He said the CFO was not convinced that the plant would be ready to process in April. Niagara still has to get the building up, the mechanical equipment working, licenses issued and people in place. In these circumstances, the CFO decided it would be irresponsible for it to allot 1.6 million kilograms solely on the basis of the assurances given by Niagara that these tasks could be accomplished in time. He said the CFO is not opposed to new entrants. Processors are CFO’s customers and it wants more customers. However, given the size of the request, the CFO decided to deny the request pending the outcome of the review by the Commission.
Mr. Posthuma said that the allocation for Quota Period A-19 was raised 5%. To add another 1.6 million kilograms would mean an 8% increase and that would severely impact the processing industry.
The Tribunal examined the evidence and concluded that, while the contractor provided assurance that the building would be built by April 12, 1998, the Tribunal derived no comfort that the equipment would be in place, operational and eligible for license from either provincial or federal inspectors by that date. 1.6 million kilograms out of a total production of 55.4 million kilograms in Quota Period A-19 is a significant portion of the total production to allot to a plant that is not in operation especially when the existing processing plants in the province are operating at 50% of capacity. The Tribunal accepts the position of the CFO that it would be irresponsible to allot such a large initial supply to Niagara under these circumstances.
Chicken is a live commodity so it is not possible, as Mr. Thomson suggested, for the production to merely be held back until the plant is ready if the April 12, 1998 completion date is missed. This Tribunal has heard many times how holding chickens for two or three days can place the producers out of category and over quota in their production. It is not an acceptable practice in the chicken industry to place producers in a position of contravening the CFO regulations because the processor is not ready to accept product on time.
In the opinion of the Tribunal, as soon as the actual capacity of this plant can be determined, the CFO should allocate a percentage of this capacity of the plant to begin a graduated entry into the chicken processing industry.
The Tribunal finds that there are no defined criteria for new processor entrants and this has created the difficulties that caused this appeal to come to the Tribunal. In the opinion of the Tribunal, the industry is remiss in not having foreseen this situation and provided a mechanism to guide new entrants in making decisions. Having said that, an allocation of 1.6 million kilograms in the first quota period of operation of a plant, in the opinion of the Tribunal, is too large an increase for the industry to absorb without disruption. In the opinion of the Tribunal, a new entrant policy should be developed and should consider issues such as:
a definition of what constitutes a new entrant,
the maximum allocation to a new entrant in any quota period,
minimum requirements, in place at the time of request, to be eligible for a supply allocation,
a quota period for the allocation to start,
a consistent growth pattern for graduated entry into the industry.
Decision and Reasons
After careful consideration of the evidence provided and submissions made, the Tribunal decided to deny the appeal and uphold the decision of the CFO not to provide a supply of live chicken to Niagara in Quota Period A-19 for the following reason:
In the opinion of the Tribunal, setting a precedent by granting such a large initial allocation to a new entrant is inappropriate considering the fact that a review of the supply setting mechanism is underway.
Dated at Guelph, Ontario this 4th day of February, 1998.