Lamoureux Limitee v. Chicken Farmers of Ontario, 2000 ONAFRAAT 14

Agriculture, Food and Rural Affairs

Appeal Tribunal

1Stone 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:

Lamoureux Limitee v Chicken Farmers of Ontario

Lamoureux Limitee v CFO 2000 ONAFRAAT 14

STATUTE:

Ministry of Agriculture, Food and Rural Affairs Act

HEARING:

July 5, 2000

DATE OF DECISION:

July 25, 2000

2000-14

NEUTRAL CITATION:

2000 ONAFRAAT 14

Lamoureux Limitee 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 Agriculture, Food and Rural Affairs Appeal Tribunal by Maurice Lamoureux Limitée, St-Isidore, from the April 27, 2000 decision of the Chicken Farmers of Ontario wherein the Chicken Farmers of Ontario denied a request for an exemption from the policy on the minimum amount of quota that may be fixed and allotted to a premises.

Before:

Jim Rickard, Chair; Denis O’Connor, Vice-Chair; Ralph Huckle, Member; Ron MacDonell, Member.

Appearances:

Maurice Lamoureux, on behalf of the appellant, Maurice Lamoureux Limitée.

André Lamoureux, on behalf of the appellant, Maurice Lamoureux Limitée.

Mr. Kevin Thompson, Operations Manager, the Chicken Farmers of Ontario (CFO), on behalf of the respondent, the Chicken Farmers of Ontario.

Mr. Don MacAllister, Inspection Services CFO, on behalf of the respondent, the Chicken Farmers of Ontario.

Mr. Geoffrey Spurr, counsel to the respondent, the Chicken Farmers of Ontario.

Guylain Levac, Inspection Services, CFO.

DECISION OF THE TRIBUNAL

This appeal was heard in Ottawa, Ontario on July 5, 2000. Maurice Lamoureux Limitée (Lamoureux) appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the Tribunal) from the April 27, 2000 decision of the Chicken Farmers of Ontario (the CFO) wherein the CFO denied Lamoureux’s request for an exemption from the policy on the minimum amount of quota that may be fixed and allotted to a premise.

Jean-Pierre Pouliot, performed interpretation services for the hearing.

The pertinent sections of CFO Quota Policy 141-1999 are as follows:

1.1 In this Policy Statement:

(d) board means Chicken Farmers of Ontario

(u) registered premises means a building and the lands appurtenant thereto in respect of which the board fixed and allotted quota.

2.2(4) A crop quota is personal to the producer to whom it is fixed and allotted. All chicken must be produced and marketed pursuant to a crop quota by the producer to whom the crop quota has been fixed and allotted and at the registered premises in respect of which that producer’s basic quota has been fixed and allotted.

3.7(1) A producer may apply to the board to relocate the basic quota or part thereof fixed and allotted in respect of registered premises to another parcel of land in which the producer is the beneficial owner.

4.3 No application may be made by a new producer for a transfer of basic quota without registered premises of less than 15,000 units of basic quota unless the application is to acquire the entire basic quota of the transferor.

4.4 The board will not reduce the quota fixed and allotted in respect of registered premises to less than 15,000 units and will not fix and allot quota of less than 15,000 units in respect of another premises.

The Background

Maurice Lamoureux Limitée (Lamoureux) is an established chicken producer with basic quota of 14,991 units fixed and allotted to registered premises located at Part of Lot 21, Concession 9, Township Caledonia, County of Prescott. Lamoureux also owns previously registered production space located at Lot 14, Concession 16, Township of South Plantagenet, County of Prescott. In mid-1991, Lamoureux applied to relocate 4,003 units of basic quota from the South Plantagenet property to the Caledonia property which application was granted by CFO.

Quota Policy 141-1999 was made by the CFO on September 13, 1999 (the New Basic Quota Policy). Pursuant to the New Basic Quota Policy, the CFO provided for the fixing and allotting of 6,500 units of basic quota to qualifying producers. In the New Basic Quota Policy, the CFO anticipated that, where required, producers could construct additional space through either an existing barn expansion or new barn construction so as to accommodate any basic quota currently fixed and allotted to them plus the 6,500 units of basic quota.

The New Basic Quota Policy is subject to the minimum basic quota requirement of 15,000 units per registered premises as set out in CFO Quota Policy 143-1999. This quota policy provides that producers may relocate all or part of a basic quota fixed and allotted in respect of registered premises to another parcel of land of which the producer is the beneficial owner provided that the CFO will not reduce the quota fixed and allotted in respect of registered premises to less than 15,000 units and will not fix and allot quota of less than 15,000 units in respect of another premises.

In accordance with the requirement of the New Basic Quota Policy, Lamoureux filed a Form 200 with the CFO on December 22, 1999 which gave notice of its intention to construct the required additional space so that the entire 6,500 units of new basic quota could be fixed and allotted.

Lamoureux is now seeking an exemption from the minimum quota requirement of 15,000 units contained in Quota Policy 143-1999 that would allow it to utilize production space at both the Caledonia location and the South Plantagenet location rather than build new space.

The Issue

The issue before the Tribunal is:

Should Lamoureux be granted an exemption from the regulations of the CFO that would allow Lamoureux to produce the crop quota associated with its basic quota in two separate premises?

The Evidence and the Findings

Mr. André Lamoureux spoke to the Tribunal on behalf of Lamoureux. He told the Tribunal that he is concerned about the process he had to follow to have his concerns heard. He said the CFO makes the rules, then when he raised concern, he had to go to Burlington to the CFO offices where the CFO makes rules and judges appeals. This is contrary to his understanding of the way the law is to work. The same party should not be both judge and participant at a hearing. He drew attention to a case involving the Liquor Licence Board in Quebec where the decision of the Board was overturned simply because the Board was both judge of the case and party to the case.

He said he understood that the CFO was created by the producers to represent and defend their interests. He questions if the interests of the producers come first at the CFO. He thinks that the policy on minimum farm size was written in response to pressures from processors or the Farm Products Marketing Commission (the Commission) not from producers. He told the Tribunal that Lamoureux consists of a feed mill, 60,000 laying hens, 30,000 pullets in cages, 14,991 basic quota units (including the 6,500 basic units that has just recently been fixed and allotted by the CFO to every registered producer who qualified) for broiler production and land that is rented out for growing cash crops.

Mr. Lamoureux said that, at the present time, 33,000 laying hens are housed in a two-story barn on the 10th Concession and broilers are produced in a barn on the 9th Concession (the Broiler Barn). Lamoureux has another 6,500 square foot barn on Concession 17 where broilers used to be grown. In 1991 Lamoureux amalgamated its quota holdings of 3,000 basic units and 4,000 basic units into the Broiler Barn. At that time Lamoureux stopped broiler production in the barn on the 17th Concession.

The Broiler Barn is large enough to accommodate Lamoureux’s previous crop quota, with some additional 6,500 basic quota units being fixed and allotted by the CFO he needs additional production space. He said that Lamoureux wants to use the barn on the 17th Concession to produce broilers in addition to the existing barn on the 9th Concession. If Lamoureux is allowed to use this existing production space then it will not have to build an addition onto the Broiler Barn. He said that the cages in the egg layer barn will be worn out in about five years and that barn will be renovated into a broiler barn, using both floors, and Lamoureux will then have ample space to produce its crop quota allotment at a single location.

Mr. Lamoureux argued that, while the CFO says that it is building for the future, the CFO’s rules prevent him from building his future in an efficient manner. The CFO refusal to allow Lamoureux to produce his crop quota allotment in two barns, one in Concession 17 and the other five kilometers away in Concession 9 has resulted in Lamoureux not being able to grow about 3,000 kilograms of additional each quota period and has not allowed him to participate in the export program. As a result, Lamoureux has lost about $100,000 projected profits over the past two years. In order to comply with the CFO rules, Lamoureux would have to spend approximately $57,000 to build an extension on the Broiler Barn so there is enough room to fully use the previous quota plus the 6,500 basic now being fixed and allotted to Lamoureux and at the same time grow any additional and export quota available.

Mr. Lamoureux filed with the Tribunal a portion of the regulations governing chicken producers in Quebec. He said that in Quebec the quota is a licence to produce, it is not mandatory that it be attached to a building or a piece of land. He pointed out two sections of the regulations. He said that one section sets the minimum size of production area at 300 square meters, and the other allows producers to grow their crop in multiple locations as long as the producer notifies the Board of the locations and any modifications made to increase the capacity to produce chicken.

Mr. Lamoureux argued that the CFO quota policy sets the minimum quota to be fixed and allotted to a registered premise at 15,000 basic quota units. The policy then allows an exemption for those producers who currently own less than 15,000 basic quota units. He asked for an additional exemption that would allow a producer to have quota fixed and allotted to two different existing premises so that he could use his existing barn space rather than build an extension that would only be of use for the next five years. The exemption would allow producers to be more competitive in terms of cast of production.

Mr. Lamoureux told the Tribunal that he had been told at a producer meeting in Trenton that Mr. Kevin Thompson had said that monitoring production in multi-locations is not a difficulty for the CFO staff. Therefore, monitoring production in his two barns should not be a basis for refusing his request.

Mr. Lamoureux also raised the issue of the CFO providing its regulations in both French and English. He has asked for this in the past and the CFO has refused his request. He said he feels prejudice in this decision of the CFO.

In response to questions Mr. Lamoureux said that:

He completed the Form 200 indicating he would be providing production space for the additional 6,500 basic quota units. At that time he contemplated renovating a 50-year-old barn into space he could use on a temporary basis for broiler production. The conversion costs would be large.

The Broiler Barn can now accommodate about 10,000 birds in the 2.6 to 2.9 kilogram category. 13,000 birds in the 1.98 to 2.15 kilogram category.

Both the Broiler Barn and the barn on Concession 17 were built around 1980 and when they were bought by Lamoureux 3,000 basic quota units were purchased and fixed and allotted to the barn on the 10th Concession and 4,000 basic quota units were purchased and fixed an allotted to the barn on the 17th Concession. In 1991 these two quotas were merged and fixed and allotted to the Broiler Barn on the 9th Concession.

The barn on the 10th Concession was torn down and a new 30,000-bird pullet barn was built on this lot.

Lamoureux does not want to divide its quota. Lamoureux wants to be allowed to produce its quota in two locations – in the Broiler Barn and in the barn on the 17th Concession.

He is aware of other producers who produce their quota in two barns but the barns are located on the same lot.

He is aware of another producer who, like him, has an empty barn on a different lot and is unable to use the two locations to produce his crop quota. This producer looses a lot of chickens to heat in the summer because of crowding in his registered premise.

Kevin Thompson, Operations Manager for the CFO, told the Tribunal that he has worked for the CFO for the past 12 years. In his current position his duties relate to the administration of the CFO regulations and quota policies. He is also involved in the development of new policies for consideration of the board.

Mr. Thompson detailed the history of the minimum quota policy as follows:

• Before 1989 a producer could only buy or sell an existing farm complete with land, quota and buildings attached.

• In 1989 the CFO instituted quota transfers without premises as a means of encouraging new entrants. A new producer could start with 3,000 basic quota units.

• The minimum basic quota holding was increased to 5,000 units in 1990 as the number of small producers holding 3,000 quota units had increased significantly and causing concern to the CFO. The CFO did not see its future in an industry dominated by small producers. The CFO wanted to increase producer efficiency.

• The minimum basic quota holding was changed to 10,000 in 1992 and later to 15,000 where it currently stands.

• Existing producers can sell their entire quota if they own less than 15,000 basic quota units or any portion of their quota as long as they do not go below 15,000 units.

• New entrants have to start with at least 15,000 basic quota units.

Mr. Thompson told the Tribunal that, from the perspective of the CFO regulations, Lamoureux is requesting the establishment of two registered premises, both below the minimum quota holding requirement. He said that basic quota is fixed and allotted to a premise. A registered premises is a property on a separate deed to which quota is fixed and allotted. Two barns on one lot are one registered premise. To receive a crop quota the producer must have sufficient building area on the registered premises. Producers can have more than one barn on a registered premise.

Additional crop quota utilize growth in the industry. It was allotted on a per capita basis and was allotted regardless of the size of the quota holding. The only caveat is that a producer did not get more additional quota than basic quota and the producer had to have sufficient space to grow the allotment.

He said that the current policy enables those producers who have two existing registered premises to transfer quota between the two on a temporary basis. This allows flexibility in the use of their building space. It can provide for more efficient crop production in some circumstances. This section of the regulation is not frequently used. He noted that Lamoureux had two premises in 1990 but gave one up.

According to Mr. Thompson the “additional” kilograms represent growth in the Ontario chicken market. This growth is about four percent per year. The additional portion of the crop quota has grown significantly since the last conversion to basic quota. Conversions were made in 1978, 1986 and 1994. The 1994 increase was calculated pro rata to the producer’s quota holdings but then the CFO continued to calculate additional on a per capita basis. In 1999 the CFO decided to convert the additional into basic quota. The decision was made to allot this new basic quota to producers on a per capita basis and then switch to a pro rata allocation of “additional” for future growth. In making this decision, the CFO received input from producers, industry and the Commission. The producer input was mixed, the smaller producers wanting to continue with the per capita system, while the larger producers wanted a pro rata allocation. The strongest input was from the Commission, which clearly told the CFO that it preferred a pro rata allocation in order to increase farm size and efficiency. The result is 6,500 basic quota units were fixed and allotted to each registered producer. This equates to about 10,000 kilograms of crop quota per Quota Period.

In order to be allotted this new quota, producers are required to provide building area for the 6,500 units. Those who did not have sufficient building space had a period of time to provide it or they had to forgo some of the new basic quota units. 59 producers had insufficient space to house all of the 6,500 units. 12 producers chose not to build and gave up a portion of the 6,500 quota units. The basic quota units fixed and allotted to these 12 producers was just enough to fill the building area that they had available. These producers gave up a few hundred-quota units to a high of 2,000 quota units. The other 47 producers committed to build sufficient space to accommodate the entire 6,500 increase.

Mr. Thompson told the Tribunal that Lamoureux committed to provide 3,000 square feet of additional space and so was allotted the 6,500 units on the condition that the space is provided. Lamoureux currently has space for all but 317 units, but the space would be completely filled with the basic production quota and no space available for additional quota allocation or previous undermarketing or export.

In response to questions Mr. Thompson said:

• The CFO export policy is voluntary. Producers choose period by period whether they will participate. Kilograms produced for export are at a lower price so some producers do not participate. Producers are allotted kilograms on a per capita basis subject to the producer having sufficient space to grow the birds. He does not know if Lamoureux applied to participate in the export program.

• Prior to Quota Period A26 the space per quota unit requirement on 9-week cycles was 0.73 square feet while the 8-week cycle required 0.65 square feet per quota unit. This was changed in Quota Period A26 to 0.65 square feet per quota unit for both cycles. This allowed 9-week cycle producers more density per cycle but not more kilograms per cycle.

• He is not aware of special circumstance relating to Lamoureux that might contribute to granting the request. In his opinion there are numerous other producers that could put themselves in a similar position. For example, the 47 producers who expanded or built new may have preferred to split their production instead.

• There have been discussions on the 15,000 minimum basic quota units and the CFO has decided to leave it at that level for the present time.

• The Ontario chicken industry faces pressure from the global market and world trade agreements to reduce cost and remain competitive.

• Mr. Laroux purchased a farm of less than 15,000 quota units and moved the entire quota to a registered premise on Concession 10. As long as he moves the entire quota, this is permitted.

• He did not have in his hearing file the original of the Lamoureux letter dated September 27, 1998 so he could not say when it was received at the CFO. But once it was received, he had to send it to Mr. MacAllister for translation, then present the information to the Board of Directors for their consideration and then draft the response. These steps all take time. He agreed that there are 59 days between the date on the Lamoureux letter and the date of his response.

• Form 200 is to be used by producers who did not have enough space to qualify for the 6,500 basic quota units. These producers had to submit the Form 200 by January 8, 2000 and commit that they would build the space in order to qualify for the quota. Allotments were made on the strength of the commitment made on this form. These producers had until July 29, 2000 at the latest to have the building complete to qualify for the quota. The new basic quota has been allotted for Quota Period A33 (ends July 29). Pro Rata allotments of additional commence in Quota Period A34.

• The CFO does not have a history of placing special conditions on registered premises to allow a producer to utilize quota. The CFO is of the opinion that such conditions become unenforceable.

• Crop quota is allotted on the basis of 2.7 kilograms per square foot of production area.

• In the opinion of the Board of Directors of the CFO, granting the Lamoureux request would set a precedent that would undermine the minimum quota policy because there is no special circumstance that sets Lamoureux apart from other producers.

Don MacAllister, Field Services Representative for the CFO, told the Tribunal that he has been in this position for 17 years. He looks after the territory from Highway 41 at Napanee to the Quebec border. He is bilingual (English-French) and has 37 producers in his territory. In 1982 he had 14 producers in the territory. The number of producers began to increase in 1989 when the CFO allowed transfers of quota without premises and set the minimum quota holding at 3,000 basic quota units. He knows of people in the district who would like to get into chicken production but have abandoned their plans because of the cost involved in setting up for 15,000 basic quota units. Mr. MacAllister told the Tribunal that Marcel Laroux started at 3,000 basic quota units. He bought out a producer with building and quota, transferred the quota to his own farm under the grandfather clause of the quota policy, sold the farm back to the original owner and since then has added to his quota holdings. Under the quota policy, he does not have to go to 15,000 basic quota units immediately.

In his summation Mr. Lamoureux said that:

• In the letter of September 27, 1999 he was asking for information and wanted the rules in French. His request was refused and he finds this decision deplorable.

• The CFO policy is very rigid with no room for flexibility.

• Lamoureux is not interested in separating the quota or selling a farm. Lamoureux just wants to use the existing buildings on land that Lamoureux already owns to produce the crop quota allotment associated with Lamoureux’s basic quota.

• Quebec chicken farmers have more flexibility in where they grow their crop allotments.

• Mr. Laroux has received a premises transfer lower than the 15,000 basic quota units specified in the policy so Lamoureux’s situation should also receive consideration.

• If Lamoureux’s request is not granted, then additional time should be provided to build the extension on the Broiler Barn as Lamoureux wants to take advantage of all of the 6,500 basic quota units that will be allotted to it.

In his summation Mr. Spurr argued that:

• The conditions prescribed by the New Basic Quota Policy in terms of barn construction and expansion have been evenly and consistently applied to all qualifying producers in the province.

• In compliance with and with reliance on the New Basic Quota Policy, a significant number of producers have initiated construction of new barns at considerable expense.

• There is no question that there is ample non-registered production space available in the Province of Ontario which could have been used by producers to receive the 6,500 units if the 15,000 unit minimum quota requirement for new registered premises did not exist.

• If existing producers were permitted to establish a production facility for chicken of less than 15,000 units, there would be no basis to require new producers to meet such a requirement. In other words, it would be unfair to require new producers to have a minimum quota size of 15,000 units as a term of entry into the industry if existing established producers did not have to meet the same requirement.

• The 15,000-unit minimum quota requirement has evolved over time to its current level. The rationale behind the requirement is that it encourages efficiency and economies of scale without being an absolute bar to entry into the industry. During the development of the New Basic Quota Policy, the Commission reinforced the goals of efficiency and economies of scale when it sent a very clear message to the CFO urging it to move away from per capita growth distribution.

• If the exemption were permitted, there would be no basis for the CFO in the future to prevent Maurice Lamoureux Limitée selling the farm to a third party.

• There are no special, particular or unique circumstances associated with the Lamoureux request.

• If the appeal is granted, the CFO’s minimum quota policy will effectively have been eliminated.

• In administering its quota policies, the CFO is required to act fairly, consistently and equitably to producers. Granting the Lamoureux request would constitute an arbitrary action and would be unfair to all other producers who have relied upon the policies and made their own operative decisions in the context of the regulatory regime. What is relevant is whether the policies are applied evenly.

On the issue of the CFO being both party to the hearing and decision maker, this was contemplated by the legislature when it passed the Farm Products Marketing Act and the Ministry of Agriculture, Food and Rural Affairs Act. The Farm Products Marketing Act sets out the framework for producer votes to establish a marketing board with a Board of Directors comprised of producers elected by their fellow producers. This Board of Directors is delegated authority over the marketing of the regulated product. The Ministry of Agriculture, Food and Rural Affairs Act establishes the Tribunal and requires that a hearing be held before the marketing board before any appeal can be heard by the Tribunal. While the regulatory regime is not the usual situation in civil law, it is the system established by the Ontario Legislature to govern the marketing of regulated agricultural products.

The May 25, 1999 letter from the CFO to Lamoureux indicates that the Directors of the CFO are sensitive to the fact that there are chicken producers who are not fluent in English. The CFO employs the services of a bilingual (French – English) field services representative to assist in translation of the rules and regulations. However, when the regulations are not translated into French, unilingual French producers are not in the same position as unilingual English speaking producers. They cannot read the regulations themselves, get their own impression of what the regulations says, ask the board field representative to interpret the regulation to them and then test the advice against their understanding gained from their reading of the regulation. The CFO has attempted to address this concern by providing the services of a French speaking field services representative and keeping the ratio of producers to this field services representative low. The relationship demonstrated at the hearing between Mr. Lamoureux and Mr. MacAllister is an indication that this service appears to be beneficial.

Mr. Lamoureux presented part of the Quebec regulations governing chicken production. While the regulations are interesting to the Tribunal, they do not apply in Ontario. It is not reasonable to take a portion of the Quebec regulations and compare it to a portion of the Ontario regulations. The regulatory regime has to be compared in totality in order to properly assess the function of any particular part in relation to the total.

André Lamoureux’s argument is that Lamoureux wants to grow the quota that is associated with the basic units of quota that Lamoureux owns in production facilities that Lamoureux owns in more than one location. While this may be possible under the regulations in Quebec, the Ontario regulations do not allow this to occur. The CFO has found it necessary to fix and allot basic quota to registered premises, which is identified by the name on a property deed. Since the Lamoureux production facilities are situated on separate properties, it is not possible for Lamoureux to divide its crop quota between two premises and still maintain the integrity of the 15,000 minimum basic quota to be fixed and allotted to a premise. The minimum size of quota holder at 15,000 has evolved over a period of time and there was no compelling argument that the Tribunal should interfere with this figure.

The Tribunal accepts and agrees with the submission of Mr. Spurr that the CFO is required to act fairly, consistently and equitably to all producers and that granting the Lamoureux request would be unfair to the other producers who have relied upon the CFO’s policies and made their operative decisions to build space or forgo the fixing and allotting of this 6,500 units of basic quota.

The Tribunal is of the opinion that every person who chooses to participate in the production of a supply managed commodity must accept the terms and conditions of the market as established by the governing commodity board or work within the system to effect a change in the rules. Effectively the benefit of the group takes precedence over the benefit of the individual. In this case, the benefit to the industry of having an effective minimum basic quota holding policy outweighs the detriment to Lamoureux of having to build additional space in order to comply with this policy so that they can receive the entire 6,500 units under the new basic policy regulation.

Decision and Reasons

After careful consideration of the evidence presented and the submissions made by the parties the Tribunal decided to deny the appeal of Lamoureux. However, in light of the time consumed in filing and hearing this appeal, Lamoureux ought to be given additional time to complete building the space necessary for it to fully utilize the 6,500 basic quota units. The Tribunal directs that a grace period of up to one full marketing period from the date of the decision, that is the marketing period during which the decision is released plus the next period, be given to Lamoureux to complete the required building expansion.

The reason for this decision is that the Tribunal was not convinced by the evidence that there are sufficient mitigating circumstances in this case to order an exception to the CFO policy on minimum quota that is fixed and allotted to a registered premise.