Keurentjes v Dairy Farmers of Ontario, 2000 ONAFRAAT 22

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

Keurentjes v Dairy Farmers of Ontario

Keurentjes v DFO 2000 ONAFRAAT 22

Ministry of Agriculture, Food and Rural Affairs Act

September 6, 2000

DATE OF DECISION:

September 22, 2000

2000-22

2000 ONAFRAAT 22

Keurentjes v Dairy 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 Wim Keurentjes from the April 3, 2000 decision of the Dairy Farmers of Ontario denying his request for compensation for losses incurred as a result of transferring quota from the Quebec market to the Ontario market.

Before:

Jim Rickard, Chair; Denis O’Connor, Vice-Chair; Gertrude Levac, Member; Ron MacDonnell, Member.

Appearances:

Wim Keurentjes, appellant.

Nathalie Keurentjes, appellant.

Robert Tolhurst, counsel to the appellants.

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

Grant Kennedy, Quota Supervisor for the Dairy Farmers of Ontario.

Geoff Spurr, counsel to the Dairy Farmers of Ontario.

This appeal was heard in the Council Chambers of the Township of Champlain at Vankleek Hill Ontario, on Wednesday September 6, 2000. Mr. Wim and Mrs. Nathalie Keurentjes appealed to the Agriculture, Food and Rural Affairs Appeal Tribunal (the Tribunal) from the April 3, 2000 decision of the Dairy Farmers of Ontario (the DFO) denying their request for compensation for losses incurred as a result of transferring quota from the Quebec market to the Ontario market.

The Background

Prior to the creation and empowerment of the DFO (then the Ontario Milk Marketing Board) in the 1960s, there existed a group of producers with premises located in eastern Ontario that shipped milk to the Montreal market. These shipments received a premium price. Therefore, when the DFO came into being, a special arrangement was made for such producers which enabled them to continue to supply the Montreal market. Although situated in Ontario, these producers were not required to hold marketing quota from the DFO. Instead, they were licenced and held quota from the Quebec Milk Marketing Board (referred to hereinafter as the “Federation”). The Federation was responsible to regulate these producers and they were beyond the jurisdiction of the DFO. Thus, the producers in question were able to continue to service the Montreal market and receive a premium price even though supply management for milk and pooling had been introduced in the province in which their farms were located.

Effective February 1, 1988, the DFO approved a policy provision that pertained to milk producers with their premises located in Ontario that nonetheless held quota issued and allotted by another provincial marketing board. At that time, milk was divided into two markets – fluid and industrial or Market Share Quota (MSQ) – each province controlled its own fluid market but the industrial market was a shared Canadian market. Initially, Ontario based Quebec shippers who wanted to move from shipping to Quebec to shipping to Ontario had to sell their Quebec fluid quota before they would be allowed to change markets, but they had to bring their MSQ to Ontario since this quota represented a share of the Canadian market. As time passed and quota changed to one pool the policy evolved to where an Ontario based Quebec shipper had to bring all of their Quebec based quota with them if they transferred to the Ontario market.

The applicable section of the policy is Section H of the DFO’s quota policy. Section H is as follows:

“Ontario-based producers transferring to the Ontario market from another province must bring to Ontario the total quota allotted for their use in the previous year, or the total quota allotted at that farm in the previous year, whichever is greater.”

In 1996, Mr. Wim Keurentjes purchased a dairy farm in Ontario but shipped the milk to the Montreal market. He married Nathalie after he purchased the farm. They produced and shipped milk under the rules and regulations of Quebec. They decided that they should switch to the Ontario market and the rules and regulations in Ontario. They made the conversion on April 1, 1999 bringing with them all of the Quebec based quota assigned to their farm. After the conversion they felt that the policy of the DFO was unfairly administered and they should have been able to sell their Quebec quota on the Quebec quota exchange and buy – as a new producer – the quota they needed on the Ontario exchange. Since Quebec quota is more expensive than Ontario quota this would have allowed them to purchase more Ontario quota and expand their operation and increase production. They asked the DFO to assign them 8.4 kg of additional quota. This is the quota equivalent to the difference between the value of their Quebec based quota and Ontario based quota on the day the conversion was made. The DFO denied this request and Mr. and Mrs. Keurentjes appealed to the Tribunal.

The Issue

The issue before the Tribunal is:

Did the DFO administer Section H of the quota policy in an evenhanded manner in the conversion of Mr. and Mrs. Keurentjes from being an Ontario based Quebec producer to being a producer licensed in Ontario?

The Evidence and the Findings

Mr. Wim Keurentjes told the Tribunal that:

He was born in Holland and immigrated to Canada where he began working on dairy farms and built up his assets to the point where he could purchase his own farm. He did not receive any substantial financial help from his family in the purchase of his farm. He married Nathalie after buying the farm and they now have one child.
He purchased from Mr. Carmin Howes an ongoing dairy farm operation in the Township of Lochiel effective August 1, 1996. Mr. Howes had produced milk from that location with Quebec milk quota since 1966.
He had never owned any type of quota in Canada, Holland or elsewhere prior to August, 1996.
The quota held by Mr. Carmin Howes and transferred with the ongoing dairy farm operation to him in August 1996 was 4,231 kg of fluid quota and 2,253 kg of industrial quota (equivalent to 17.9 kg of daily quota). The farm at that time included 23 milking cows with a rolling herd average BCA of 161-181-165. At present, he milks 33 cows with a rolling herd average of 185-185-189, and plans further expansion of his herd. He has been told by his bank that he needs to grow to 33 to 35 kg of daily quota in the next few years if he is to remain a financially viable dairy farmer.
He was allotted one kg of non-transferrable quota under the Young Producer Program in Quebec, which he was entitled to use for 10 years as a Quebec producer but not to sell or transfer. He lost the use of this quota when he transferred to the Ontario market.
He knew the DFO policy for Ontario based producers who wish to transfer into the Ontario market from another market.
He discussed with Mr. Alex Hamilton, DFO fieldman, on several occasions in late 1998 and early 1999 his wish to sell his Quebec quota and purchase Ontario quota, but was advised that this was not permitted by the DFO.
He required additional quota to allow for expansion of his farming operation. The Quebec quota price in early 1999 was substantially higher than the Ontario quota price.
He transferred 18.9 kg of Quebec quota from the Quebec market to the Ontario market effective April 1, 1999.
The Quebec quota price in March 1999 was $22,000.00 and the Ontario quota price for that month was $15,280.00. If he had sold the Quebec quota that month the sale proceeds would have provided funds to purchase 8.31 kg additional Ontario quota, or a total of 27.21 kg.
He bought 17.9 kg of quota with his farm. He has since purchased one kg on the Quebec exchange, four kg on the Ontario July 1999 exchange, one kg on the November 1999 Ontario exchange, five kg on the December 1999 Ontario exchange and four kg on the June 2000 exchange. In addition, he received 0.42 kg in general increases so that his total quota holdings as of this hearing is 33.32 kg.
In September 1999 the DFO approved a request made by Mr. Allan Nixon for a license as an Ontario producer. Mr. Nixon’s father had been an Ontario based Quebec producer who was retiring. The DFO had refused Mr. Allan Nixon’s initial request for a license to produce milk from that farm as an Ontario producer unless he brought with him the Quebec quota that had been assigned to the farm for the previous 12 months. Subsequently, the DFO reversed its decision and issued Mr. Allan Nixon a licence to produce milk in the Ontario market without requiring transfer to Ontario of the Quebec production quota held by his father.
Mr. Keurentjes went to Mississauga to a hearing with the Board of Directors of the DFO and asked that, in light of the decision made in the Nixon case, he be assigned additional production quota of 8.4 kg, the equivalent of the financial loss incurred in the transfer of his higher priced Quebec quota into the Ontario market.

In response to questions Mr. Keurentjes said:

If the value of the quota in Quebec and Ontario had remained the same, he would not have switched markets.
Quebec based producers have access to Quebec government support programs that Ontario based producers selling in the Quebec market are not eligible to obtain. This gives the Quebec based producers a financial advantage he could not compete with when buying quota.
The reason for switching to the Ontario market is the lower price of quota in Ontario.
He had proposed different conversion scenarios to Mr. Hamilton but it was clear that he could not avoid the policy unless he changed farms and that did not make sense to him.
If he had lived in Quebec and sold his Quebec quota he could move to Ontario and start as a new producer with an Ontario license buying Ontario quota. As an Ontario based Quebec producer he does not have that advantage and this is unfair to him.

Mr. Grant Kennedy, Manager of the DFO quota exchange, told the Tribunal that since the early 1970’s the province operated with a two-quota system – fluid and MSQ. In 1994, Ontario converted to a one-quota system and Quebec followed about two years later. He said that, under the two-quota system, each province looked after its own fluid market while industrial quota was national. Because fluid was specific to the province an Ontario based producer holding Quebec fluid quota could not bring that quota to Ontario since it was part of the Quebec market. These producers had to sell their fluid quota in Quebec and then buy Ontario fluid quota. MSQ was part of the national market. An agreement with Quebec allowed MSQ to flow back and forth. For some reason fluid quota has always been higher priced in Quebec than in Ontario. If a number of producers sold their quota in Quebec and came to Ontario and bid for quota they would drive up the price. There is a limited amount of quota for sale in any month. The DFO is concerned that if these producers sell their quota in Quebec at a higher price and then come to Ontario and buy quota, they would bid high to make sure they were able to purchase quota. The result is an undesirable increase in Ontario quota price. The DFO also wanted to discourage speculation in the quota values. If Ontario based Quebec producers were allowed to sell Quebec based quota at a high price and then purchase Ontario based quota at a lower price and continue to ship milk without making any change in their farming operation, this would result in a quota windfall to these farms. As a result the DFO put in place Clause H of the Quota Policy. To avoid producers selling all of their Quebec quota and then applying to convert, the policy requires all of the quota used in the previous 12 months or the quota attached to the farm in the previous 12 months to be converted.

He said Mr. Keurentjes initiated the transfer application by calling Mr. Alex Hamilton, the DFO fieldman for this area. Once the DFO was satisfied that the quota figures from Quebec were accurate the transfer was made on a kg of Quebec quota for a kg of Ontario quota basis. He noted that, under the P6 agreement producers’ gross returns are equal in Ontario and Quebec. Because some of the administrative charges, transportation cost, etc. are different, producers’ net return can be different.

Mr. Kennedy told the Tribunal that he handled the file for the Nixon transfer. The application was initially denied by the Quota Committee. Mr. Allan Nixon then appeared before the Board of Directors of the DFO to state his case. At that hearing of the Board, Mr. Nixon said that he held no ownership in the farm – his father owned the land, the buildings, the herd and everything else. Mr. Allan Nixon claimed that, for all intents, he was a hired man paid a salary. His father was not prepared to give him any quota or other help he claimed he was a new producer, never licensed in Ontario, and therefore should be provided a license and an opportunity to purchase quota.

In response to questions Mr. Kennedy said that:

The policy on conversion of Ontario based producers from out of province markets to the Ontario market has evolved with time but the intention has always been to prevent profiting on quota sales.
There are 6,500 Ontario milk producers. This number is reducing 3 to 5 % per year but the remaining farms are bigger.
The only Ontario based producers holding out of province quota are the Ontario based Quebec shippers.
In 1999, Ontario had 81 new producers, that is someone starting production at a farm that was not shipping milk when the new person arrived.
The DFO has no information on how many of these new producers previously held milk quota in another province, sold it, and then moved to Ontario and bought Ontario quota and started shipping milk in Ontario.
If a Quebec based milk producer sold their Quebec quota and moved to Ontario they could buy lower priced Ontario quota and then begin shipping milk in Ontario but in that situation the producers is physically moving from Quebec to Ontario. Something more is involved than staying at the same farm, selling one quota and buying another, shipping the same milk and making a windfall in the quota price difference.
The DFO has received inquiries from Ontario producers wanting to move their quota to a rented farm in Quebec and then sell the quota on the Quebec exchange. The DFO has a policy in place to prevent these transfers.
The DFO has asked the Federation not to issue Quebec quota to a farm in Ontario.

Mr. Gord Coukell, milk producer, Director for Region 6 and Vice-Chair of the Board of Directors of the DFO, told the Tribunal that the P6 pool still exists for the financial purposes of the agreements, however Manitoba participates in both the P4 – the western provinces and the P5 – the eastern provinces. He said that the P5 formed to harmonize policies in the eastern part of Canada. Sharing the market is one policy of the P5. The quota reflects the share of this market that each producer has. Milk flows from New Brunswick and Quebec into Ontario – nine million litres of Quebec milk moves into Ontario because of pooling. All producers are paid in the same manner and share in all sales in that market.

Mr. Coukell referred to the case of another Ontario based Quebec shipper that has been allowed by the DFO to transfer into Ontario with only part of the quota attached to the farm. He said in that case there had been court intervention in the dissolution of a partnership and the partner who transferred to Ontario brought his portion of the quota that was held by the partnership when the conversion was made. He said the Board looked at this as a special case and provided an exception to the Quota Policy.

He said that, as a Director of the DFO, he was not aware of a Quebec producer selling their quota and then moving to Ontario and starting up again. He said, in his opinion, there is a difference between:

(a) staying on a farm and just changing markets and,

(b) selling a farm, moving and starting again.

Mr. Coukell told that Tribunal that milk producers are sharing the same market so under the pooling concept there is no justification for selling quota in one province and then buying quota in another. Quota is a share of the market not an asset so there is no sense in selling one part of the pool and buying another part of the same pool. He said the Keurentjes case is clear – an existing producer staying in the same location licensed in Quebec wished to become licensed in Ontario – this causes no problem but the producer should not profit from the sale of quota when that producer is selling milk into the same market.

Mr. Coukell said he was at the hearing where Mr. Allan Nixon presented his case to the Board. Mr. Nixon had not been a licensed producer, he sat at the table and told the Board that he had no financial interest in farm, cattle or quota and that he was getting no money from the sale of the quota by his father. He was becoming a new producer. The Board took what he said to be the truth and decided the case on the basis that Mr. Nixon was a new producer and not an Ontario based Quebec shipper.

In response to questions Mr. Coukell said:

The DFO tries to treat people as fairly as possible and make exceptions to policies when mitigating circumstances exist.
Mr. Allan Nixon was asked directly if his father would help with the start up of his farm and Mr. Allan Nixon said his father would not help him.
There will be no new Ontario based Quebec shippers because of an agreement with the Federation.
All Ontario quota is allocated to producers.
The last general reduction in quota in Ontario was in August 1997.
To his knowledge, the DFO has not allotted quota to an individual in the past. There was some quota allotment ordered by the Tribunal at the time the cream producers converted to milk producers but those are the only instances he can recall.

The Tribunal examined the evidence filed and submissions made and drew the following conclusions.

Mr. Keurentjes transferred his Quebec based quota to Ontario jurisdiction in April 1999 complying with the policies of the DFO. He did so for his own business reasons not because he was required to do so by either Quebec or Ontario milk marketing boards. He was content with the result of the Transfer until he learned of Mr. Allan Nixon’s case. Mr. Allan Nixon was issued a new producer license by the DFO in December 1999.

There is no evidence that the Nixon situation had any special consideration from the DFO. The evidence is that Mr. Horace Nixon, Allan Nixon’s father, was a licensed producer located in Ontario and selling into the Quebec market. Mr. Allan Nixon told the DFO that he had no interest in his father’s farm, quota or cattle and was essentially a hired man on his father’s farm. Mr. Coukell told the Tribunal that Mr. Allan Nixon was specifically asked if he had access to any of the money from the sale of Mr. Horace Nixon’s farm and Mr. Allan Nixon said he did not. That was the basis of the DFO decision that Allan Nixon is a new producer. This is a different situation than Mr. Keurentjes who was already a licensed producer who merely wanted to convert his quota from Quebec to Ontario for his own business reasons.

Mr. Keurentjes transferred his quota holdings to Ontario because:

the high cost of quota in Quebec and,
he could not get access to the assistance programs that the Quebec based shippers have.

He made this decision because he could expand with Ontario quota more easily than he could with Quebec quota. He continued to ship milk from the same location in exactly the same manner as he did when he shipped to Quebec.

The Tribunal accepts the evidence of Mr. Coukell that the other producer, referred to at the hearing, transferred all of the Quebec quota that the producer held interest in at the time of transfer. The portion of quota sold prior to transfer was that portion held by the partner who did not transfer to Ontario production.

Decision and Reasons

After careful consideration of the evidence filed and submissions made the Tribunal decided to deny the appeal.

The reason for this decision is that no evidence was filed of special circumstances in this case that warrants an exemption to the policy.

Dated at Guelph, Ontario this 22nd day of September, 2000.